Wednesday, February 21, 2007

Merchant Banks

As readers of this blog will know I have been banging on about the sale of Qantas airlines over the last few weeks. One of the major sponsors of this sale are the Merchant banks and one in particular.
The other day I heard a senior executive of this bank being interviewed and of course the topic of his pay came up. He is paid millions of dollars in bonuses and fees. All based on his performances. His base pay is a cool $400,000.00 [that is four hundred thousand dollars] which he described as well below world average for his job. But in reality his take home pay is millions of dollars.

He kept using the word 'Create' to describe what he does, as in.

"When I create I should be paid large sums of money, because I create." What I think he meant is, he is creative with making money make more money.

From what I can see from a deal like the tunnel that goes under Sydney, [which has been a disaster of a project]. The likes of his bank took enormous amounts of money in the form of fees. Sometimes, in fact many times, banks like his tout their creative ideas to governments with the hope of picking up very large projects.

My feelings on this sort of behaviour is not that it is creative, more predatory than creative. This takes me to the Qantas deal and the behaviour of this bank. It thinks it is being creative to buy up a company of this size and then play with the figures and make it look profitable so the new owners can sell it in a few years for a profit.

This may sound simplistic but when you see the figures that these banks and directors are going to pay themselves, the only motivation must be to make very large amounts of money. A figure of $80 million in fees.

If the share holders weren't the only interested group that need to be consulted on this sort of predatory behaviour then these deals would have a much harder time getting approved. And this still may be the case with regard to the Qantas deal. Due to regulatory controls.

If the main way of measuring success in this world is by how much money you can extract from any given deal, then Merchant banks are a business success. But as with the Sydney Tunnel and the Qantas deal, there will be numerous other factors in play.

What is the purpose of building roads that need the protection of other roads being closed and hefty tolls being imposed to make them profitable for elite investors. When our environment is being harmed by too many cars.

Equally what is the purpose of buying an airline and burdening it with debt [which includes large amounts of unperformed debt to pay Bank Fees] to buy fleets of planes to carry more passengers and compete with low cost competitors. At a time when fuel consumption and the environment has rightly become a real concern.

I believe this type of predatory banking/financing is cleaning up the later part of the capitalist system as we know it. There will be a melt down of money markets and this way of doing business will be seen for what it is, a rich mans play ground in the guise of responsible wealth creation. And then see where our Super Annuation funded wealth disappears too.


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