Monday, December 13, 2010

U.S. Banks: Serve More CoCo, Please

I like my financial advisor. I even trust the guy.

So when he called a month ago to see about adding more funds to my stocks portfolio, it pained me to say no.

Not because he's done a poor job managing my investments; he's kept me whole through the shattering economy.

"Nick, I won't give Wall Street more than the bare minimum. Not until I see actual change in how success gets measured and rewarded. If I fund the same old jackassitude, who's the real jackass? The one pouring the feedbag."

He didn't fight me on the point. We wondered if any bank would risk being the first-mover in restructuring compensation. Fast forward a few weeks and ding! We have a winner. Maybe.

Barclays Capital wants to issue contingent capital securities, or CoCos, as part of its compensation structure. According to Reuters Breakingviews, this is a good idea worthy of regulators' endorsement. I agree.

The CoCos pay a fixed return –8 percent annually, vested over three years - that would fall in value if the bank suffers big losses. So bankers would have an incentive to protect against losses, not just look for short-term hits of profit. Imagine that:  paid for long-term performance. Let's hope British authorities let Barclays have a go. And that the Yanks catch up and latch on.