(Corrected for HSBC error)

 

Bruce Packard of brokers Seymour Pierce is one of the best banking analysts in the City. His reaction to the news of the scale of the rewards dished out to Bob Diamond at Barclays is the best argument I’ve seen as to why these bonuses will ultimately damage the bank. He points out that when the public are sufficiently enraged, they can do great damage to a brand.

As a postscript to his latest thoughts (RBS is his favoured stock) he muses whether HSBC would face a Brent Spar moment among retail depositors if it decided to move abroad. That affair caused German motorists to boycott Shell petrol stations. The fact that Greenpeace’s action caused a much more damaging solution to the problem was irrelevant, since the damage to the company’s reputation had already been done.

Here’s his take on Barclays:

“The weekend press was full of Bob Diamond’s pay (£25m including previous years’ awards and tax that Barclays has paid for him). Fund managers, regulators, politicians, journalists and the man in the street all find this level of reward hard to understand. We would note this reaction is not “tall poppy syndrome”, where high achievers are cut down to size by a cynical UK press. Instead while Bob was at Barclays Capital the Barclays shareprice roughly halved. Promote him to Chief Executive, unsurprisingly the share price halves again. Barclays shares are trading at a discount, we think because investors think too much of the rewards goes to management, and too much of the risk goes to shareholders. We prefer RBS  where the Chairman has recognised this as an issue, and the Chief Executive turned down his bonus and is now shrinking the investment bank.”

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