STOCK TAKE: BONUS ROUND: Banker bonuses are back in the headlines. Domestically, there was the revelation that Bank of Ireland had paid €66.4 million in bonuses since September 2008. In contrast, a flat share price in 2010 persuaded UBS chief executive Oswald Gruebel to forgo his annual bonus for the second year in a row. So far, Gruebel is the only chief executive of a major bank to forgo his 2010 bonus. On Tuesday, RBS, which is 84 per cent owned by the British taxpayer, revealed that it awarded chief executive Stephen Hester with £4.45 million (€5.18 million) in shares. Barclays chief executive Bob Diamond this week banked a £6.5 million (€7.5 million) bonus – not bad, considering that he promised to show "as much restraint as is possible" just two months ago.
“We are sensitive, we are listening”, he said at the time, before going on to assert that the period of “remorse and apology” for banks “needs to be over”.
One of the biggest beneficiaries at Barclays was – wait for it – Rich Ricci. As one Twitter user noted: “You couldn’t make it up – top paid bankers called Diamond and Rich Ricci.”
NUMBERS GAME:British analyst James Montier is a rarity in his profession – he's always worth reading. Almost routinely deemed the top-rated global strategist in the annual Thomson Extel survey over the last decade, he's authored a number of fascinating books on behavioural finance and value investing. His latest note to GMO clients is the Seven Immutable Laws of Investing.
So what are the seven laws?
1. Always insist on a margin of safety.
2. This time is never different.
3. Be patient and wait for the fat pitch.
4. Be contrarian.
5. Risk is the permanent loss of capital, never a number.
6. Be leery of leverage.
7. Never invest in something you don’t understand.
TEST PATTERN: Last summer's stress tests into European banks are widely regarded as a joke. Out of 91 banks tested, all but seven passed, including AIB and Bank of Ireland.
This week’s sovereign bond market developments confirm that the tests were a misguided appeal to the confidence fairy. Yields on Portugal’s 10-year bonds hit 7.7 per cent – a euro-era high and very much bailout territory. Italian bonds hit their highest level since late 2008. Greece’s sovereign credit rating was downgraded by Moody’s.
This failure has necessitated a second round of tests. However, key parts of the tests have already been softened by regulators, the Financial Times reported this week. Equity market falls of just 15 per cent are to be tested for, compared to 20 per cent in last year’s tests. Plus ça change.
