Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Seventeen years ago this week, US share prices were as high as they were going to reach before the great financial crisis pulled them (and many other global assets) into the abyss.
With splattered balance sheets, the world’s biggest 50 banks bled two-thirds of their market value combined between 2007 and 2009. Almost 90 lenders disappeared forever.
Banks lost more than just capital. The sector’s image was shot. Even in money-loving America, where I covered the crisis in real time for this paper, Wall Street was loathed. It had killed Main Street — its wholesome antithesis — too.
Worse still were the bailouts, or so people felt. Why should those careless financiers be given public money when the rest of us are losing our houses, our retirement savings, or both? Never again, governments and policymakers promised.
Some took consolation from the rush to regulate. In the US, the Volcker rule would stop traders betting the farm — ditto the bonus cap in Europe. Meanwhile, the Dodd-Frank act of 2010 was expected to hobble banks so that they wouldn’t be able to walk, let alone strut.
How wrong everyone was.
I sat next to Barney Frank at the White House correspondents’ dinner a year later. He would have swallowed his dessert spoon if the future of banking had revealed itself. Namely, how fast normality resumed.
In aggregate, the three dozen top US and European banks were back to their pre-crisis market caps within a decade. And they had even more employees four years after Lehman Brothers went ka-boom than they had before, according to S&P Capital IQ data.
Having been rescued by taxpayers, did bankers cease paying themselves eye-popping salaries and bonuses? Er, no. Compensation and benefits amounted to 27 per cent of revenues for the lenders above in 2007. Last year it had actually gone up, to 31 per cent.
Meanwhile, the MSCI world banks index is up almost 300 per cent since the nadir of the financial crisis and is currently at record levels. Far from being crippled, the average return on equity for global banks with a market cap of more than $25bn is the highest it has been in the intervening years.
But none of that would have surprised Barney as much as finance becoming recently cool. Here in the UK, the third series of the worldwide television smash Industry began airing last week. It shamelessly glamorises the money — and the sex and drugs — in banking.
Roll forward and my 12-year-old daughter has been singing the viral TikTok meme “I’m looking for a man in finance” all summer long — nearly 60mn views and counting. As a desirable career, finance has jumped from fifth to first in the CFA’s annual global Graduate Outlook survey, leapfrogging medicine, healthcare and education.
Or maybe it’s just the culture war pendulum swinging back the other way. After years of doing good and saving the planet, the trendy kids have decided that unfettered free-market capitalism sounds rather more fun. And they may get to drive a Porsche.
The riches came — last year the green finance market exceeded $5tn, according to numerous estimates. But they were accompanied by shouts of hypocrisy and self-serving greed. Woke bankers were not hip either, it seems.
So I am glad that finance is up and punching on its own terms. Being the go-to whipping boy was never deserved anyway. You could argue that banks didn’t cause the financial crisis, for example: delusional wannabe homeowners who would not accept that they couldn’t afford property did that.
Finance makes the world go around — an essential link between the providers and recipients of capital. Last year the industry contributed 12 per cent of the UK’s public finances. That’s half the NHS budget. Where was the clapping on doorsteps during Covid for financial services?
No, my only gripe is the insane level of pay. Especially when many lenders fail to earn a return on equity that exceeds their cost of capital. In other words, they destroy value while even their personal assistants earn six figures and expect a bonus.
That is an issue for shareholders, however. Why they remain silent while financiers take such a whopping slice of their pie is one of life’s great mysteries. Eating it though, or wanting to be someone who does, is, like, totally cool.
