Bonuses

Have you seen any serious evidence that bonuses directly led to the financial crisis in the autumn of 2008?  I can understand how the argument runs, that if you incentivise  traders or bankers on a lowish basic wage with promises of a substantial bonus to take bigger and bigger risks , one day the whole pack of cards will probably fall down.  But has there been any research supporting the thesis?  City AM’s Allister Heath this morning draws attention to a paper,  Bank CEO Incentives and the Credit Crisis, which looked at whether bonuses paid to CEOs of banks affected the bank’s performance and concluded there was no relationship between size of bonus and success, or failure of the bank.  The paper only considered CEOs and it would be useful to extend the study to traders.

Unless you are a member of the participitating universities, you won’t be able to download the paper in full but the authors’ summary is helpful.

“Focus” on CVA

Continuing the trend of retailers who have managed to secure the votes of their landlords for a CVA (JJB, eg), now Focus (DIY) has been the latest company to succeed.  CVAs have proved attractively flexible in the past year or so helping companies to avoid more formal administration procedures and restructuring.

During August 2009, the retailer needed to secure the CVA to be able to renew its two-year revolving credit facility with the bank.  The banks wanted Focus to deal with its so-called “dark store situation”.  38 non-trading stores were draining £12m a year from the retailer’s resources.

The CVA means that Focus will now save £8.6m of the £12m annual cost. Under the terms of the CVA, Focus will not pay rent, service charges and insurance on the stores. In return, the landlords will receive a share of a £3.7m compensation fund, paid in two equal parts next year.

Retail Distribution Review – independence, clarity and fairness

The Financial Services Authority began consultation earlier this summer (2009) on changes it proposes to its Retail Distribution Review.  The emphasis is on independence, clarity and fairness in the relationship between adviser and investor.  My firm, CMS Cameron McKenna are holding a briefing on RDR and on the FSA after the credit crunch: (how ARROW, Supervision, Policy and Enforcement have changed) in Edinburgh on 16th September 2009 and in London on 22 September.  Please email fs.seminars@cms-cmck.com if you would like a place.

Limited partnerships – proving their existence

From the 1 October 2009, banks will be able to rely on a certificate of registration as conclusive evidence of a limited partnership’s existence and registration.  The Legislative Reform (Limited Partnerships) Order will clarify the process for registration of limited partnerships by the registrar of companies.

Il Perugino and the Bankers’ Guild

Bank Law Blogger has been on a very long summer holiday.  Let me tell you about the beautiful fifteenth century Collegio del Cambio in the Italian city of Perugia.  This Bankers’ Guild is gloriously decorated.  In days when banking was very profitable, local boy Il Perugino frescoed the walls of the Council Room.  Those bankers had an eye on good PR, associating themselves with the four cardinal virtues (prudence, fortitude, temperance and justice), prophets, sybils and antique heroes from Rome and Greece.   Well worth a visit, perhaps next time you’re in Perugia for the chocolate festival.

For Bank Law Blogger, the holidays are over …