Shameless Greed Global Rage at Bankers' Bonus Excesses

Banks around the world may have made huge losses and be reliant on state bailouts to survive, but they're still paying out huge bonuses to their top staff. The popular outcry against the greed is growing -- but few bankers are willing to go without the cash.


Investment banker Stefan Jentzsch was far away, recovering from the exertions of the previous year on a yacht somewhere in the Caribbean, when the banks almost collapsed -- and his world fell apart.

The past has since caught up with him back at home, where his name is in the papers almost every day. Jentzsch, 48, has suddenly gained notoriety as the man who was still raking in millions after his bank had lost billions, and as the man who is responsible for bonus payments that amounted to €400 million ($520 million) -- costs that German taxpayers will now have to bear.

Jentzsch was the head of Dresdner Kleinwort, an investment bank that was never terribly successful and, in fact, did particularly poorly last year. For the first nine months of 2008, it registered a loss of €2.2 billion ($2.86 billion). The bank's loss for the entire year will be significantly higher, because the decline only accelerated in the fourth quarter. Dresdner Bank, Kleinwort's parent company, ran into financial difficulties and was acquired by rival Commerzbank, which had its own problems and had to be bailed out twice by the government.

By that time, Jentzsch had already said his goodbyes and had taken with him a severance payment of about €8 million ($10.4 million), a golden handshake that was completely legal and to which he was entitled. He is also entitled to a bonus worth an unknown amount. But now that he has become a household name, Jentzsch claims that he no longer wants the bonus.

When Jentzsch was still at the helm of Dresdner Kleinwort, he made sure that its then-owner, insurance giant Allianz, guaranteed its investment bankers bonus payments for 2008 totaling €400 million ($520 million).

The bonuses are now due, even though the government has since acquired 25 percent of Commerzbank and has had to spend €18.2 billion ($23.7 billion) bailing out the bank, an amount that could still end up not being enough.

Jentzsch has become the face of public outrage over bankers who destroyed billions and ruined the economy, all the while taking steps to ensure that they were sitting pretty -- bankers who have unloaded the disastrous results of their actions on the public's doorsteps but are doing nothing to help alleviate the problems. In fact, some are even reaching into the government's pockets.

There are many people like Jentzsch nowadays, all over the world. Every country has its own Jentzsch, and citizens everywhere have been overcome with anger and helpless fury. The bonus payments are an especially sore point. Though small compared with the total extent of the damage caused by investment bankers, which numbers in the trillions, they exemplify the greed and shamelessness of a profession once seen as part of society's elite.

"The common good depends on a certain level of moderation in the individual," says German Interior Minister Wolfgang Schäuble, a member of the conservative Christian Democratic Union (CDU). "Such excesses are the expression of a loss of connection with reality, and they threaten the basic consensus of our society."

Social Democratic Party (SPD) chancellor candidate Frank-Walter Steinmeier agrees: "I keep being shocked by the loss of any sense of reality and the cynicism of some leading executives. Executives are role models -- in both good and bad aspects."

Rarely has public outrage been so unanimous, reaching from the citizen on the street into the cabinet, from Chancellor Angela Merkel to US President Barack Obama.

"It is incomprehensible that banks helped out by the state in many cases pay out huge sums in bonuses," says Merkel. Executive bonuses will also be a subject of discussion at the G-20 summit in London in early April. "Overall the bonus system must be linked to the truly sustainable success of the banks in an internationally more transparent way."

The subject of bonuses has given a new impetus to the discussion of executive salaries and compensation that has long worried the politicians in the two parties that make up Berlin's grand coalition government, the SPD and the CDU. Federal Justice Minister Brigitte Zypries, who earns a net monthly salary of about €8,000 ($10,400) and, as the daughter of a pharmacy owner, tends to favor the pro-business wing of the SPD, wants to see more "social responsibility" and the "awareness of an honorable businessperson" among Germany's business elite.

Zypries said she is astonished that "bonuses are paid essentially as part of fixed salaries, and they are even earned when a company is on the brink of bankruptcy."

Labor Minister Olaf Scholz has been traveling around Germany for weeks, meeting with company executives and urging them not to lay off employees despite the crisis and declining orders and sales. Scholz too finds executive greed hard to believe, saying that in firms "where employees are accepting reduced working hours and wages, generous bonuses cannot be paid."

For Consumer Protection Minister Ilse Aigner, the bonus payments represent one of the triggers of the crisis. "When bank customers must accept losses, those responsible for the losses should not be rewarded," says Aigner, a member of the conservative Christian Social Union (CSU).

The grand coalition has rarely been this united. Bankers have now gambled away any moral capital they may once have had, so much so that some now refer to members of the profession as "banksters" -- gangsters in pinstriped suits. They were once known in German as Bankiers and were considered the gentlemen of the business world. Then Germans began using the English word "banker," which sounded more modern. But as the name changed, so did the profession's self-image. The new bankers emulated their Anglo-American role models, the luminaries of Wall Street.

Graphic: Wall Street bonus payments, 1985-2008

Graphic: Wall Street bonus payments, 1985-2008

Banks shifted their focus to making profits instead of supplying credit to the economy. As returns rose, so did the risks. Avoiding those very risks had been the profession's supreme objective in the age of the gentlemen bankers.

But in the age of investment bankers, a new rule applied: the bigger the risks, the better. Risk seemed manageable, thanks to sophisticated products and mathematical models. But the complexity of those models only gave the illusion of security.

Didn't anyone ever step back and ask themselves whether this brave new world where there were no real risks could even be possible? Or were such questions simply suppressed because an honest answer would have jeopardized the bankers' own lifestyle?

For a long time, everyone benefited from the system, including investors both large and small. But most of all the investment bankers themselves profited. With the help of increasingly absurd salary- and bonus systems, they managed to funnel 50 percent of all profits into their pockets. The sums involved ran into billions.

What began as a perfectly sensible way to share profits developed more and more into a system of unrestrained greed.


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