It's bonus time again - bankers in Britain shed restraint (Feature)

By Anna Tomforde Jan 13, 2011, 2:06 GMT

London - Bonus time is back with a vengeance in the City of London - leaving the British government red-faced over failed efforts to stamp out the culture of huge reward payments associated with the 2008 crash.

Two years after the country's leading banks went cap in hand to the government to save them from ruin with multibillion cash injections, bankers have signalled that they no longer want to be chastised for the biggest financial crisis since the 1930s.

For two years, they had - reluctantly - waived their bonus payments in the face of public anger and political disapproval - but now that profitability has returned to the banking sector, the gloves are off.

It took the straight talking of Bob Diamond, the US-born chief executive of Barclays Bank, to ram the message home to the British government and public in no uncertain terms.

'There was a period of remorse and apology; that period needs to be over,' he told a parliamentary hearing on the banking sector this week.

In a forthright defence of the industry's practices, Diamond said banks needed to pay bonuses to reward risk-taking and stay competitive.

Asked by a member of the parliamentary committee whether he understood how 'toxic' the issue of bonuses remained to the average man in the street, he replied: 'We are listening, we are sensitive.'

The American banker, who previously led Barclays profitable investment banking arm, Barclays Capital, became chief executive of the group this month. He was once described as the 'unacceptable face of banking' by a former Labour government minister.

Diamond's outspoken comments came just days after Prime Minister David Cameron called on banks to show restraint over bonus payments, especially from banks which were partially nationalized in the 2008 bailout.

But Cameron also said that it was wrong to indulge in 'banker- bashing' and that the 'folly of the banks' was only one of many causes for the credit crunch.

The issue is explosive for Cameron's Conservative-Liberal Democrat coalition, with the Liberal Democrats having adopted a much more uncompromising stance on bonuses.

Cameron's conciliatory tone was in marked contrast to the 'punitive rhetoric' employed by the Liberals, noted the Financial Times.

The Liberals, led by Nick Clegg, have said they will not stand 'idly by' if huge and 'unacceptable' bonuses return to the City, London's financial district.

The government, in its defence, points to the introduction of a bank levy in Britain, and says it is in continued negotiations with banks to agree on smaller bonuses and higher levels of business lending.

However, there have been signs that the talks are not going well. Insiders have reported that bankers have threatened to pull out of the discussions while warning that a crackdown could damage Britain's financial services industry.

'One stark political fact trumps all others: banks are about to pay billions of pounds in bonuses and the government cannot stop them,' wrote the Financial Times.

Meanwhile, the dizzying figures of this year's payouts are seeping out.

Although bonus pools are expected to be down by 20 per cent, the return to profitability by most leading banks in 2010 will mean generous handouts totalling around 7 billion pounds (11.1 billion dollars), according to reports.

Stephen Hester, the boss of state-controlled Royal Bank of Scotland (RBS), is in line for a cash and shares bonus of 2.5 million pounds, followed by Eric Daniels, the outgoing chief executive of Lloyds Bank - in which the government has a 41-per-cent share, with 2 million pounds.

Daniels, a US citizen, is widely credited with having turned Lloyds round after the 2008 debt crisis. He is due to leave his post in March.

Meanwhile Diamond, whose Barclay's bank declined government help in 2008 and opted to raise capital in the Middle East instead, is expected to receive well in excess of 3 million pounds.

However, the high-profile banker refused to be drawn when asked by a Labour parliamentarian whether he would accept a bonus this year.

'I'll make that decision with my family, as I did last year,' said Diamond, adding: 'You're not a big fan of Barclays, are you?'

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