Blankfein calls for re-think of bonuses

Outsize banker bonuses came under fire from an unlikely source today — the chief executive of Goldman Sachs.

Lloyd Blankfein took to the stage at a banking conference in Frankfurt today to express his confidence in the strength of Wall Street and to insist that the worst of the finanical crisis is over.

In a hard-hitting speech, he also attacked some investment banking as socially useless, echoing the controversial sentiments of Financial Services Authority chairman Lord Turner.

Onthe hot topic of the moment - banker's pay - he offered advice that not all in the industry may feel he is best placed to give.

"Compensation continues to generate controversy and anger, and in many respects much of it is understandable and appropriate," said Blankfein, who was paid $68 million in 2007.

"There is little justification for the payment of outsized discretionary compensation when a financial institution lost money for the year," he added.

Goldman Sachs caused huge controversy as recently as July when it unveiled £2 billion in profits for the second quarter, meaning that this year's bonus pot is likely to reach £14 billion. That's an average of £500,000 each, an amount that the top earners will exceed by many multiples.

Critics said this showed the bank had not learnt any lessons from the financial crisis and showed considerable disdain for taxpayers.

The bank, like the rest of the industry, has been operating under government guarantees both explicit and implied for some time.

Blankfein today argued that multi-year guaranteed bonuses should be banned and that "clawback" of bonus payments when deals later turn sour should be allowed.

But he added; "Rumours of Wall Street's death a re greatly exaggerated" and that there was every reason to be optimistic about the future.

And he warned that clamping down on bankers too much would damage the economy, saying it was important to resist a response "that is solely designed around protecting us from the 100-year storm".

"Taking risk out of the system will be at the cost of economic growth," he added.

Fear of taking "appropriate" risks was now receding in the banking industry, he said, adding that before the crisis, many banks did not understand their own products - a factor that led to them unwittingly taking on foolish risks.Goldman has repaid $10 billion it took in rescue funds from the US government.