How do you give bankers incentive to tone down their risky behavior? Pay them in subordinated debt, instead of equity, says Paul Tucker, the deputy governor of the Bank of England.
“Having managers exposed to instruments whose value depends on the survival of their firm would give them a healthy incentive to maintain a safe and sound bank,” Tucker said at yesterday’s British Bankers’ Association conference, according to Financial News.
Tucker isn’t the first person to support such a plan, but as the presumed successor to Mervyn King as Governor of the Bank of England, his comments surely have European bankers taking notice.
While far from being implemented, the plan has some merit. After all, risky lending behavior and equity-based schemes were practically encouraged under pre-recession rules, and played a big role in the birth of the financial crisis. Incentivizing safer banking, rather than punishing risky behavior, may result in an overall change in philosophy that regulators have been asking for.
Uneven Q3 (NY Times)
Bank of America reported third quarter earnings of $340 million, down from $6.2 billion a year ago, due mainly to a $1.6 billion write-down in litigation expenses tied to its acquisition of Merrill Lynch. BofA did see improvements in its mortgage and investment banking divisions.
Staying Put (Fortune)
Citigroup Chief Risk Officer Brian Leach, who many expected to step down following the resignation of CEO Vikram Pandit, told staffers that he isn’t going anywhere.
Semantics (The Telegraph)
Citigroup Chairman Michael O'Neill, the man reportedly behind the firm’s CEO swap, believes incoming chief executive Mike Corbat will focus on “achieving strong, sustained operating performance.” Read: cost-cutting.
Breaking Free (WSJ)
Royal Bank of Scotland, majority-owned by the government following a 2008 bailout, has negotiated its exit from the Asset Protection Scheme, an expensive state program designed to safeguard certain assets against default. The move is seen as a big step in RBS’s effort to go private.
Change Was Needed (Bloomberg)
Citigroup’s share price spiked following the firm’s surprising decision to cut ties with CEO Vikram Pandit, something not lost on former Morgan Stanley chairman John Mack, who thinks the jump signifies that shareholders were as unhappy with Pandit as was Citi’s board.
Losses Growing (Bloomberg)
Knight Capital reported a huge net loss for third quarter – nearly $390 million – after it was revealed that an August trading software glitch cost the firm $457.6 million, not the previously reported $440 million.
Rounding Out the Team (FIN Alternatives)
Forward Management’s new global healthcare hedge fund won’t launch until 2013, but most of the team is already in place. Joining portfolio manager Scott Kay, a founding partner at Partner Fund Management, is i-banking veteran Chris Zellner and two former analysts who previously worked with Kay.
Buzz Around the Office
Blind Protecting the Blind (MSN)
A 61-year-old blind man was tased by police in Lancashire, England after they mistook his cane for a samurai sword.
List of the Day: White Lies
Hiring managers will often tell candidates small white lies to leave a meeting on a good note. Here are a few that often mean you’re unwanted.
- We’ll keep you in mind as other roles open up.
- We aren’t finished interviewing yet.
- You’ll hear from us either way.