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Morning Coffee – Deutsche traders win the bonus battle. Bankers fight back against “nepo babies”.

According to the ever omniscient “people familiar with the matter”, talking to Bloomberg, Deutsche Bank is planning a below-inflation 4% salary increase for staff not covered by a union agreement (the majority of the investment banking front office), a cut in the IBD bonus pool but an increase in variable compensation for the FICC Sales and Trading staff. 

If this turns out to be true (and apparently the final decision hasn’t been taken) it will be an interesting development when compared to the Street – most other banks seem to have spread the pain a little more broadly.  Goldman Sachs, for example, appeared to be guiding their own sales and trading teams to 30% down, which is better than the investment bankers, but obviously not as good as an increase.

It's always a tricky decision for a bank to make in a year when the two great tribes of the front office have markedly divergent performance.  At Deutsche there was bound to be some differentiation – for the first nine months of the year, debt capital markets was down 72% and equity down 82%, while fixed income trading revenues were up 26%.  Even with exceptional goodwill and collegiality on the compensation committee, there’s no way that sort of difference can be smoothed out.

But to actually give the FICC traders an increase is an important statement of intent for Deutsche in a number of ways.  First and most obviously, it sends out the clear message that at Deutsche, you get paid for making money rather than for potential, market share or anything else.  This has been a consistent theme of Christian Sewing’s leadership – given the problems of the past and the need to support a recovering share price, Deutsche has more need than most to demonstrate a clear link between pay and performance.

On the other hand, it might be a bit of a calculated risk.  Deutsche doesn’t really want its revenues to be skewed toward sales and trading business lines, with all the volatility and capital intensity that implies.  It does actually want to retain and grow the capital markets and advisory franchises.  And although the US bulge bracket appear to be taking the view that 2023 won’t be a year when private equity will be keen to hire from the sell side, Deutsche has a slightly different competitive position in the labour market.  BNP Paribas and Barclays have both indicated that if there’s space for one top tier player in Europe, they would be interested in a shot at the title.

That in turn could suggest that payouts will be targeted on the bankers that Deutsche really wants to keep, with the second and lower tiers of performers being kept happy by a combination of a little bit of cost-of-living compensation on the basic salary, and potentially considerably better job security associated with being part of a team that’s already closer to rightsized.  Although Deutsche bankers have lost bragging rights to traders this year, they still have some of last year’s deferred comp to spend, a share price that’s outperformed all of the US bulge bracket and a somewhat less uncertain immediate future.

Elsewhere, if there’s one corner of the banking industry where you’d expect to see an ongoing and structural role for nepotism, it would be the world of family offices.  When the literal purpose of the company is to manage and safeguard the fortune of a particular family, you’d expect the top jobs to go disproportionately to people with the same surname that’s on the office stationery.  A survey for BNY Mellon Wealth Management asked young people scheduled to inherit a total of $19bn and found that this was indeed the case; half of them plan to work for the family office, another third for the family business and the overwhelming majority said that they were well prepared to take over.

Nearly four out of ten executives working for those family offices disagreed, however.  And only a third of family offices have written succession plans, with half of those surveyed reporting “challenging family dynamics” as an obstacle.  It seems like there might be some difficult conversations over the next few years, as some overly ambitious socialites have the news gently broken to them that the best way they can exercise stewardship over the dynastic wealth is to stay in their penthouse and leave it to the professionals.

Meanwhile …

Not quite the Buena Vista Bankers’ Club, but a group of daytraders, crypto hustlers and some adventurous hedge fund pros in search of tax breaks have set up a space in Puerto Rico where you can rent a desk and a load of LCD screens, with backup battery power and internet in case of storms. (Bloomberg)

BNP Paribas is moving its troops around ready for the market share assault on the Anglosphere next year – Simon Gates has gone to the USA to be head of corporate banking, replaced by John Bigham as head of UK coverage, while Andrew McNaught takes over as head of UK advisory. (Financial News)

Pawan Passi and Charles Leisure have officially left Morgan Stanley after having gone on leave as a result of the block-trading inquiry. (Bloomberg)

The official guide to the lousy homemade baked goods that people inflict on each other at offices around Christmas (WSJ)

If you’re looking for gift ideas for the banker in your life, and that banker either doesn’t read books or has amazingly basic tastes, the annual BI survey is a great list of airport management books, sports biographies, acknowledged decades-old investment classics and other literature which respondents feel might reflect well on them.  This year’s more interesting choices include “Foundation” by Isaac Asimov and “The Short and Tragic Life of Robert Pearce”. (Business Insider)

Punch back hard at anyone who uses the word “woke”, and accept that you’re in the “trough of disillusionment” stage of the “hype cycle”.  Public relations pros give advice to ESG bankers about how to handle the new and unusual phenomenon of not being universally liked. (Bloomberg)

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AUTHORDaniel Davies Insider Comment

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