U.K. Treasury Warns Bankers That Voters Are `Angry' at Excesses

By Mark Deen

Sept. 23 (Bloomberg) -- Britain's financial industry risks a popular backlash over outsized bonuses and reckless lending packages in the wake of this month's financial turmoil, a Treasury minister told bankers.

``People are angry right now, people are worried at what they see as excess affecting the real world,'' said Yvette Cooper, who as chief secretary to the Treasury is the Cabinet member responsible for overseeing the financial sector.

The comments reflect popular discontent about the banking industry on both sides of the Atlantic following government bailouts of Northern Rock Plc, Fannie Mae and Freddie Mac and U.S. insurer American International Group Inc. Concern about the public support for private companies is combined with resentment over pay for bankers, fund managers and others in the industry.

For Prime Minister Gordon Brown, addressing those concerns among voters and activists in Britain's ruling Labour Party is particularly tricky because the wrong reaction risks damaging one of the country's biggest earning industries.

The City of London, as the U.K.'s financial industry is known, contributes 19 billion pounds ($35.2 billion) to export earnings annually and more than 1 million jobs. It also provides about a quarter of the nation's corporate tax receipts.

``It's important that the City has legitimacy in Britain,'' Cooper said, in a plea for the financial industry to improve its practices.

Stewart Fraser, policy director of the City of London, said bankers understand that government support for banks will mean consideration of taxpayers' interests in the rules that govern them. Even so, he urged Brown to proceed cautiously.

`Effective, Not Excessive'

``Governments and regulators should avoid piling on the red tape just for the sake of it,'' he said sitting beside Cooper on a panel. ``We need effective regulation, not excessive regulation.''

Brown, who is about 20 points behind the opposition Conservatives in the polls, said this week that U.K. authorities will review the way financial-services firms award bonuses. Bankers were paid about 7 billion pounds last year in the U.K.

``There's been a great deal of irresponsibility,'' Brown said Sept. 21. ``There's an element of the bonus system that is unacceptable.''

Speaking at the ruling Labour Party's annual conference in Manchester late yesterday, Cooper said that the Financial Services Authority has been asked to start looking at how people are paid at banks and other lenders when the regulator assesses whether the institutions are taking on undue risk.

`Doesn't Feel Right'

``The FSA will look at the risks banks are taking and the way pay structures may be affecting that,'' she said. Bonuses have been big ``and it just doesn't feel right, it doesn't feel fair.''

The comments echo similar concerns being aired in the U.S. as part of the presidential election. Republican candidate John McCain called yesterday for limiting pay for executives of companies bailed out by the government as he and his Democratic opponent Barack Obama said an administration plan to rescue U.S. financial markets needs more oversight.

McCain said taxpayers shouldn't foot the bill for ``golden parachutes'' for officers of companies that have crumbled in the upheaval on Wall Street.

``The senior executives of any firm that is bailed out by Treasury should not be making more than the highest paid government official,'' McCain said at a campaign event in Scranton, Pennsylvania. The president is the highest paid federal official, with a salary of $400,000 a year.

Obama said in Green Bay, Wisconsin, that any action to bail out banks and other financial institutions must give ``hardworking Americans relief instead of using taxpayer dollars to reward CEOs on Wall Street.''

To contact the reporter on this story: Mark Deen in London at markdeen@bloomberg.net