Alex talks to Square Mile

Martin Deeson, editor of Square Mile magazine, caught up with Alex Masterley, investment banker at Megabank, in his local wine bar in the City.

MARTIN DEESON: When I interviewed you this time last year, Alex, global capitalism was facing meltdown and your employer Megabank was teetering on the brink of collapse. Since then your bank has been rescued by the government and the economic crisis seems to have abated somewhat.

ALEX MASTERLEY: That’s true. Obviously being effectively nationalised is an unusual situation for a bank. The private and public sector make strange bedfellows. But both were to blame for the crisis, which was caused by the recklessness and greed of bankers, coupled with supervisory and regulatory failure by the authorities. So it’s up to us to resolve the situation and I think we’re now working effectively together and identifying areas of common ground and shared methodology.

And what would those be?

Well, an instinctive short-termism for a start. The politicians are looking to next spring’s election and we bankers are just trying to get one more bonus under our belts before things really go belly up. So we’ve just been papering over the cracks in the meantime.

But you’ve personally had a record year. To what do you owe your success?

Well, you reap what you sow. What I think has seen us all right is the sheer calibre of the corporate clients we built up in the boom years. Basically they were all total dogs and they’re now in massive financial trouble. So we’re earning big fees from advising them on debt-restructuring and crisis management. And obviously not making any mention of how it was us that advised them (for fees naturally) to take on all that debt in the first place

So what kind of bonus are you looking at this year? Any guilt?

No, I certainly don’t want my bonus paying in gilts. It’s bad enough having to have it deferred and paid in bank stock without any of that dodgy Treasury debt..

No. I meant guilt with a “u”..

Oh, I see. No, not really.

But what about the appropriateness of bankers being paid bonuses at a time where the rest of the country is still in recession?

Well, don’t forget the City’s been very profitable in the second half of this year. But obviously we do still have some sensitivity to public opinion. And so we will certainly not be paying our staff huge bonuses.

No?

No, we’re now calling them “retention payments”.

Whatever you call them, ordinary people are angry about these pay-outs happening so soon after the banks were rescued with public money..

They’re missing the point. What they forget is that City salaries are an important source of taxation revenue and that this new boom has implications for the public exchequer. When the financial sector is making money there is a beneficial trickle-down effect to other sections of the economy. Such as tax lawyers. I mean, this time last year none of us bankers were expecting to ever see a decent bonus again. But now that we are, we’re going to need to employ someone to help us avoid the new 50% tax bracket.

So, no guilt there then. Would a regulatory policy of “naming and shaming”, of publishing lists of individuals in a bank who earned more than a million pounds a year have any effect?

Only if one’s name didn’t appear on the list. Now that’d be really shaming.

Do you feel the City has taken sufficient steps to remove the correlation between earning large bonuses and risk-taking?

Yes, absolutely. Earlier this year regulators were putting pressure on the banks not to pay out big bonuses. And Megabank responded very responsibly: by doubling everyone’s basic salaries. Which means we now automatically earn large amounts of money. So there’s no need for us to take any risks at all.

And of course we mustn’t forget the Government’s constructive contribution to this issue.

In introducing tighter financial regulation?

No, in introducing looser monetary policy. Nowadays we bankers can borrow money for next to nothing and invest it in bonds that yield 6%. So the bank makes a profit and we all get nice fat bonuses. And once again there’s no risk at all involved. So everyone’s happy.

Look, don’t forget that markets thrive on sentiment and confidence. For us in the City having had our salaries doubled has really helped boost our morale. I mean, we’ll now get twice as much in our redundancy settlements once the inevitable happens and the black binliners get passed out.

What do you think of proposals, supposedly favoured by Mervyn King, to break up investment banks into their so-called “casino banking” and “utility banking” arms??

It seems a practical solution to me. After all the casino banking divisions have been responsible for making all the money recently, so let’s hang onto that bit. And who wouldn’t want to get shot of all those potentially dodgy mortgages that the utility bank has secretly got stashed away somewhere off its balance sheet? Bring it on, I say.

Can you explain Credit Default Swaps to us please (as some of our readers need ‘reminding’).

Excuse me a second. Memo to graduate trainee: please look up credit default swaps on Wikipedia and email me asap. Sorry, about that, Martin. I’ll get back to you on that one.

So how do you feel about the demonising of bankers by the media this year? Has it had any effect on your collective behaviour?

Oh, most certainly. We’ve been consistently portrayed in the press as ruthless, opportunistic, totally lacking in moral values and motivated by our own financial gain at the expense of others. This has had the result of enabling us to pay ourselves even higher bonuses. After all, we have to protect ourselves from being poached by all our ruthless, unprincipled, opportunistic competitors.

And how about the attitude of people at dinner parties? Is ‘banker’ a dirty word now?

It’s true that admitting to being a banker at social occasions these days tends to attract unwelcome, aggressive, persistent attentions from other guests. But that’s exactly how it’s always been. Only usually they’re trying to get you to swing them an internship for their kid.

On a personal level, this year your wife Penny actually took a job for the first time in her life. She now works as a counsellor. Did you approve?

Obviously having a working wife is a little shaming, but Penny specialises in redundancy counselling. So it’s a hedge against next year going completely tits up in the financial markets. But she’s actually highly qualified to advise people who have just lost their jobs. Well, after twenty years as a corporate wife she has a wealth of experience of how to fill up leisure time.

And I hear your son Christopher has recently gone to college, to study Art. How did you feel about that?

I must say I was disappointed. I’d always hoped that my boy would follow me into the City. To encourage him I always used to invite him to come and visit me in my workplace. I hoped that making him wait in the bank’s reception for hours on end looking at all that dreadful corporate art would put him off the stuff for ever. Clearly I didn’t keep him down there for long enough.

How will you be spending Christmas?

In meetings with headhunters. The proposed new government legislation to curb excessive City pay which is due to come into force early next year only applies to new employment contracts, so this is my last chance to land myself a decent package at a different bank before I retire.

What’s your exit strategy if the City does goes belly-up? Isn’t now the perfect time to hang up your cufflinks – and, I don’t know, open a beach bar in Grand Bahama?

I think a bar in Verbier or Zermatt might be more practical at present with all the hedge funds planning to relocate to Switzerland. Oh, excuse me a moment..

I see that something important has just come through on your BlackBerry. Some big deal you’re closing?

Er, no. It’s the email revealing the venue for Megabank’s Christmas party which is happening tonight. It’s had to be shrouded in strictest secrecy this year. A bit like one of those illegal raves back in the 90s where you had to drive round the M25 until someone phoned you with the location. Well, obviously we wouldn’t want taxpayers to find out that we’re spending their bail-out cash on vintage champagne.

Well, Alex, I’d better let you go. One last question: after a year which has seen bankers lose much public respect what can the financial community do to redress its image?

You know, I think what we need right now is the traditional services provided by the PR industry.

To put a positive spin on the City?

Er, no. To pick up the tab for these drinks. Failing that I’m afraid this bill is yours.