My Lords, I support the amendment. The most important and admired banker of the 20th century—the late Sir Brian Pitman, the former chairman and CEO of Lloyds—came to the Future of Banking Commission, which I established, and on which David Davis MP, Vince Cable, Roger Bootle and others served. He gave us a lesson that day: he said very clearly that he understood that banks should be run for the long-term benefit of shareholders, and that that was what customers wanted most.
Sir Brian’s synopsis of what mattered to him as a banker was very clear, when he said in evidence to us:
“Nobody is a greater believer in shareholder value than me ... It’s long term shareholder value and everything has to be structured around the long term, particularly the remuneration structure … The minute you move to a huge emphasis on short term big bonuses you're going to change the behaviour. It is perfectly possible, in our case for 17 years when I was there”—
at Lloyds, that is—
“we were doubling the value of the company every three years for 17 years. Nearly everybody had shares in the company; messengers were worth a quarter of a million pounds when I left because we’d been successful as an organisation. But we believed it all had to start with the customer”.
He was very clear that if you had the customer in mind in terms of remuneration, you had to measure it on a 10-year basis. Only that way do you find out about the business cycle, and about whether the money paid in bonuses is money that has really been earned at all. As was said earlier, that money was not really earned in the past, because remuneration was based on expected profits, which did not materialise.
For the senior executives in banks it was upwards all the way: whether the bank went down or up, they had their bonuses. Sir Brian distinguished banks from other organisations as follows: “Banks and insurance companies have the unique ability to engineer increases in profits by pulling a lever that forces their banks to take more risks to lend and invest more relative to their capital resources, unlike other institutions”. That is why, in our report, we wanted a statutory basis, and we wanted the regulator to look at this issue.
When the noble Lord, Lord Lawson, and I were on the Parliamentary Commission on Banking Standards we considered the same issue on our sub-committee. We examined Barclays and its culture, and looked in
particular at the structured capital management division —which, incidentally, the noble Lord, Lord Lawson, referred to as tax avoidance on an industrial scale.
We wanted to find out about the business model for that, and we spoke to insiders. When Sir David Walker and Antony Jenkins came to the committee, we had prepared questions, and my question for Sir David was along these lines:
“I would like copies of all management reporting and management performance information provided to Roger Jenkins”—
who established BarCap, along with Bob Diamond—
“and Iain Abrahams to support the bonus pool”—
in other words, to provide the numbers for us. I continued:
“The second one is the information used for the purposes of calculating the bonus pool of the structured capital management division, and the information used for determining the bonuses in particular for”,
three senior executives for the past decade.
The reason why we asked for that information is that the noble Lord, Lord Lawson, said in the evidence session that Roger Jenkins, who established the division, had had more than £40 million in one year. Bob Diamond had £100 million over a 10-year period. We wanted to find out exactly how they had earned that. The insiders told us that in 2008 BarCap was responsible for 110% of the profits of the whole entity. Here we had a tax avoidance unit on a massive scale masquerading as a bank, and responsible for 110% of the profits—and we did not have a clue how they made their money. I said that we wanted the information,
“in sufficient detail in order to identify each of the subcategories of the structured capital management business. In that respect, it will be the year-end management accounts information and quarterly reports information”,
which we received. We went on to ask for more—and we received absolutely zilch information. So, as we take this banking reform Bill through the House, we still do not know exactly what BarCap was up to.
What I—and the noble Lord, Lord Lawson, and others—want to know is that the regulator has the authority, so that it can see exactly how a business is performing and getting its money, and what business model and culture it has, so that the remuneration structure does indeed have a long-term basis and serves the long-term interests of society and of customers. That is not happening to date. That is why the amendment is before the House.
6.45 pm