George Soros Attacks Banker Bonuses

Billionaire businessman and philanthropist George Soros is the latest public figure to criticize banks for paying big bonuses while taxpayers prop them up

By David Randall and Margareta Pagano

British banks have just five working days to show they have "got it". On Saturday, they must submit to the regulator – the FSA – their planned bonus awards, widely estimated to total £6bn. Prince Andrew may have said in an interview that he regards this sum as "minute in the scheme of things", but, as the economy still falters and unemployment rises, it was clear last night that the banks will grant themselves their billions in an increasingly hostile atmosphere.

On Friday, George Soros became the latest high-profile figure from the world of finance to condemn the bankers, and call for watertight restrictions on their activities. He said: "Banks are actually getting hidden subsidies of enormous amounts because of their ability to borrow at effectively zero, and buy 10-year government bonds at 3.5 per cent. So those earnings are not the achievement of risk-takers. These are gifts, hidden gifts, from the Government, so I don't think those monies should be used to pay bonuses. So there's a resentment which I think is justified."

And, as increasing numbers wonder why the United States' decisive action to cap bonuses in firms taking public money has not been matched in Britain, there are now signs of a hardening of attitudes towards bankers inside the City. The Square Mile grandee Sir David Walker, The Independent on Sunday understands, is now expected to call for them to be banned from paying guaranteed bonuses in his forthcoming report on corporate governance. He is believed to have been impressed by the growing acceptance among big institutional investors, and even the banks themselves, that paying out huge salaries and bonuses may have exacerbated and contributed to the banking crisis. One source said: "Everyone knows the levels of bonuses are quite insane. None of the banks dare break ranks and stop paying such big bonuses because they are frightened traders will jump ship to another bank, or overseas. That's why many actually want to be told what to do."

Sir David, whose report is due on 26 November, has received a flurry of submissions from the industry, most of which have argued for bank boards to take a much tougher line on how pay is structured because, they argue, the big pay awards may have pushed traders – particularly in proprietary trading – to take bigger risks than they should. Remarkably, many of the complaints he received from the City, including those from non-executive directors on bank boards, were that they felt powerless to stop banks paying out such big bonuses. Last week, it was reported that Royal Bank of Scotland (RBS), which has received £20bn of public money and fired 15,000 staff since the start of the recession, aims to pay £4bn-£5bn in bonuses. Goldman Sachs (GS), which has benefited from US government support, will pay its staff worldwide up to £14bn in bonuses, averaging around £400,000 for each of its 5,500 London staff.

And ministers have also been contacted privately by bank chairmen and directors asking for guidance on pay because of worries about public hostility over bonus levels. One banker said: "Many are terrified because they don't know what to do. Some want to cut bonuses, but they don't want to be the first to do it in case it drives staff either to rivals or overseas. But they also know that changes have to be made and want leadership from government."

These developments come at the end of a week in which Mervyn King, Governor of the Bank of England, attacked the way banks have exploited being seen as "too big to fail". He was critical of how high-risk trading was conducted by banks which knew they could rely on a publicly funded safety net. "The past two years," he said, "have shown how dangerous it is to let bankers play with fire."

His frustration was contrasted with the situation in the US, where regulators last week announced tough, immediate and non-negotiable action on bonuses.

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