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Jim Armitage: Goldman, the cleverest of banks, was always going to find a way around Brussels’ efforts to put a limit on its lavish bonuses Jim Armitage: Goldman Sachs, the cleverest of banks, was always going to find a way around Brussels’ efforts to put a limit on its lavish bonuses
(about 20 hours later)
We should have guessed. Goldman Sachs, the bank that created the most complex alphabetti spaghetti derivatives, options, swaps and other financial “instruments”, the bank that invented devices enabling Greece to game the euro entry rules, the bank which found a way to make the US taxpayer repay it 100 cents in the dollar for its multibillion-dollar exposure to the collapsed AIG, was never not going to find a way around the European bonus cap.We should have guessed. Goldman Sachs, the bank that created the most complex alphabetti spaghetti derivatives, options, swaps and other financial “instruments”, the bank that invented devices enabling Greece to game the euro entry rules, the bank which found a way to make the US taxpayer repay it 100 cents in the dollar for its multibillion-dollar exposure to the collapsed AIG, was never not going to find a way around the European bonus cap.
This cleverest of banks, stuffed with the smartest, most ruthless money-making minds in the world, was always going to be the first to ensure its famously lavish pay structures would survive the best efforts of Brussels.This cleverest of banks, stuffed with the smartest, most ruthless money-making minds in the world, was always going to be the first to ensure its famously lavish pay structures would survive the best efforts of Brussels.
And so it is that “GS”, as its simple Wall Street ticker code calls it, has reportedly found a way around the system yet again. British regulators, working for a Government which never liked the caps in the first place, have approved a plan reputedly as complex as the most baffling CMBS, CDS or other exotic derivative that Goldman ever created.And so it is that “GS”, as its simple Wall Street ticker code calls it, has reportedly found a way around the system yet again. British regulators, working for a Government which never liked the caps in the first place, have approved a plan reputedly as complex as the most baffling CMBS, CDS or other exotic derivative that Goldman ever created.
It’s easy to imagine the watchdog-mandarins being suckered in like those saps of Colonel Gadaffi allegedly were in Libya’s sovereign wealth fund. Think Mowgli gazing into the kaleidoscope eyes of Kaa.It’s easy to imagine the watchdog-mandarins being suckered in like those saps of Colonel Gadaffi allegedly were in Libya’s sovereign wealth fund. Think Mowgli gazing into the kaleidoscope eyes of Kaa.
Nobody knows precisely how Goldman has done it, so we are left to guess.Nobody knows precisely how Goldman has done it, so we are left to guess.
The phrase “role-based allowances” is apparently to be used instead of “bonus” for part of the variable pay contracts. But quite what that is we can but conjecture.The phrase “role-based allowances” is apparently to be used instead of “bonus” for part of the variable pay contracts. But quite what that is we can but conjecture.
Clearly, it cannot be individually performance based or it will fall foul of the EU rules. We know that allowances will be paid monthly and vary depending on the “economic conditions”. This is, the bank argues, to give itself some flexibility with the payroll for when the next big downturn, or upturn, comes. If you won’t let us slash bonuses in times of financial famine, at least allow us variable allowances based on the economy, it argues.Clearly, it cannot be individually performance based or it will fall foul of the EU rules. We know that allowances will be paid monthly and vary depending on the “economic conditions”. This is, the bank argues, to give itself some flexibility with the payroll for when the next big downturn, or upturn, comes. If you won’t let us slash bonuses in times of financial famine, at least allow us variable allowances based on the economy, it argues.
But “economic conditions” seems a weaselly expression. Do the economic conditions being experienced by the bank not depend at least partly on the success of trades carried out by its staff? economic conditions for John Paulson’s hedge fund were just dandy during the financial crisis, because he had a bet the size of Fort Knox against the subprime mortgage market. The point is that all banks have different views on what the ideal economic condition is, and they adjust their exposures accordingly.But “economic conditions” seems a weaselly expression. Do the economic conditions being experienced by the bank not depend at least partly on the success of trades carried out by its staff? economic conditions for John Paulson’s hedge fund were just dandy during the financial crisis, because he had a bet the size of Fort Knox against the subprime mortgage market. The point is that all banks have different views on what the ideal economic condition is, and they adjust their exposures accordingly.
Hopefully, the regulator has forbidden any such trickery about the economic definition and has insisted on some fairly straightforward measure. European GDP and employment growth would be nice, given that the purpose of these giant banks is to invest and support European enterprise. Perhaps even a blend of GDP growth, jobs and net lending by banks.Hopefully, the regulator has forbidden any such trickery about the economic definition and has insisted on some fairly straightforward measure. European GDP and employment growth would be nice, given that the purpose of these giant banks is to invest and support European enterprise. Perhaps even a blend of GDP growth, jobs and net lending by banks.
But don’t expect anything so simple.But don’t expect anything so simple.
Meanwhile, don’t be surprised if the pay related to those external factors is geared so the wage rises exponentially on the up and falls only slightly on the way down. Heads we win, tails Brussels loses.Meanwhile, don’t be surprised if the pay related to those external factors is geared so the wage rises exponentially on the up and falls only slightly on the way down. Heads we win, tails Brussels loses.
Whatever deal Goldman has struck, expect other global banks to follow. We know Barclays has already started negotiating on its own role-based allowance scheme. Just don’t expect it to be as clever.Whatever deal Goldman has struck, expect other global banks to follow. We know Barclays has already started negotiating on its own role-based allowance scheme. Just don’t expect it to be as clever.
The oligarch, his son and a mysterious London mortgage
 Whatever you do, don’t let the Russian powerbroker Vladimir Yakunin hear you suggest there might have been a wee bit of corruption around the winter Olympics.
The boss of the country’s Russian Railways declared the International Olympic Committee member Gian-Franco Kasper should be dragged to court for suggesting fraud linked to people close to the Kremlin had been rife.
Russian Railways was a major investor and builder in Sochi, and Mr Yakunin was mighty peeved, suggesting Kasper was a “slanderer” who should be judged by the law.
Given that Mr Kasper is head of the International Ski Federation and will be attending the Games, and the official functions that go with it, I’d say there’s a fair bet the pair will bump into each other. Will Mr Yakunin slap him with a writ, I wonder?
The mini-spat prompts a quick look at Mr Yakunin, who appears, for a civil servant, to be a fairly vocal character. At home he’s famed for his patriotism and loathing of “disgusting” oligarchs suing each other in London, as well as decrying the way the West undermines his beloved country. He’s a close friend of Vladimir Putin, who’s been extremely loud about Russian officials and their families owning assets offshore.
Given those pronouncements, imagine the glee with which Mr Yakunin’s enemies have seized upon the fact that his family seems to have business interests and bank accounts all over the West and in offshore centres.
The Yakunin that catches a British reader’s eye is his son Andrey. For the offspring of such a trenchant patriot, Andrey seems extremely happily ensconced in a plush home in north London, according to his filings at Companies House. He heads up a London business called Venture Investments & Yield Management LLP, which invests funds based and administered in the tax haven of Luxembourg. Many of its investments appear to be in Russian hotels – often, as reports in Moscow have claimed, situated near railway stations.
Being a London-dweller a few years older than this 39-year-old, and with young children of my own to educate, I was curious how this son of a civil servant could, as Russian reports claim, send his lad to an expensive private school in the capital.
Furthermore, I pondered, how could he have afforded to pay, as Land Registry records show, £4.5m for a house in a sought-after street off Hampstead Heath back in 2007 at the tender age then of just 32? Closer scrutiny of the documents show he (or to be more precise, the offshore company Diamondrock used to buy it) got a mortgage, of course. The lender was a business owned by the billionaire Greek Latsis family, called EFG Private Bank, based in London. For City types, that name rings a bell. Because last year, EFG got hit with a £4.2m fine from the Financial Conduct Authority for failures in its money-laundering controls. EFG was, it seems, taking on a high number of customers posing a “higher risk of money laundering or reputational risk” without adequate checks. To be more precise, 400 of its 3,300 accounts were higher risk, 94 of which were held by “politically exposed persons”.
I am not suggesting Mr Yakunin was laundering money, just that his family is interesting. Perhaps Mr Kasper might want to raise it over the Sochi canapés and vodka.