Morning Coffee: Why London bankers suffered in the last year of the bonus cap. Junior bankers' dream escape turns into endless grind
If you’re one of the unfortunate bankers who got a doughnut in this year’s bonus round, there’s one small sugary crumb of comfort which it might be possible to take – according to one industry expert, it could have been worse.
In a wide-ranging interview covering topics such as the different cultures of Europe and Asia, the reasons why IPOs fail and the global financial crisis, Craig Coben, the former co-head of global markets at Bank of America, suggests that in London at least the European bonus cap, along with its compensatory 'allowances,' totally distorted the 2022 compensation process:
“I’ve heard stories of bankers who were paid zero bonus this year who likely would have gotten less if they didn’t have these allowances and such high salaries. It meant that the banks couldn’t cut their costs as much as they could, or they had to compensate people in a way they otherwise wouldn’t have, in terms of sharing money because they had locked in minimum amounts,” Coben declares.
What he’s talking about here is “bonus pool leverage”, the not always very well understood phenomenon that when some elements of a bank’s total compensation are fixed (because of big allowances, large numbers of MDs hired during the year or anything else), then the remaining variable elements have to move around a lot more because they’re bearing the entire volatility of the bonus pool. It acts like financial leverage, particularly in a down year.
The US and Asian offices of global banks have relatively low pool leverage – base salaries are low, variable percentages high, and that means that if you got a zero, somebody thinks you deserved it. But in London, it’s more complicated. Since bonuses can’t be less than zero (unless someone’s been naughty on WhatsApp) the only way to make the overall compensation calculation work in 2022 was to hand out a lot more of them. So if you did get a zero this year, then you can tell yourself that you were really being penalised because someone else on a high basic salary should have got a negative number.
Elsewhere, the dream job for investment banking analysts who feel like they’re a bit too cool for private equity is, of course, Silicon Valley venture capital. You can live the Californian lifestyle, write earnest LinkedIn posts about changing the world and possibly find the next Facebook while lounging around on a beanbag and playing League of Legends.
Or at least, that was what it was like when interest rates were zero, money was cheap and “web3” was something you could say out loud. These days, apparently, the experience is less like playing a competitive video game and more like grinding through the lower levels to produce imaginary gold for somebody else. Young bankers who moved over to become growth-stage investors are saying things like “I feel like I got catfished”.
The problem is unfortunately exactly the same as the one that they left behind in banking – when the business is all about doing deals, it’s not much fun when there aren’t any deals. VC associates are apparently spending time on “market maps” and “industry deep dives”, phrases which really couldn’t scream “dispiriting makework” any louder. They’re also being tracked on how many calls and emails they have put in to founders and potential investments, as if they were sales & trading juniors.
For the time being, it seems that the VC firms are too California Nice – or too concerned with their long term reputation – to do anything as brutal as having a reduction in force, or a rank-and-yank of the bottom 5% of an oversized analyst class. But apparently underperformers are being given subtle hints – business school brochures left lying around, that sort of thing. It just goes to show that finance is finance – we’re all in the same industry really, even if some of us do go around saying things like “Venture is much more of a longer-term relationship game — you're partnering with an entrepreneur early on, helping them with building out their business”.
What would it be like if Jamie Dimon disappeared? Bao Fan, founder of the China Renaissance investment bank, was apparently in the process of moving some family office money to Singapore when he suddenly left the radar screen. The most likely guess is that (like Jack Ma and Ren Zhiqiang in 2020) he’s spending some time in official detention in China, possibly as part of a crackdown on finance more generally. (FT)
Pascal Schneidinger, formerly of Credit Suisse and Deutsche Bank, is the founder of a private equity fund which wants to buy four to six paintings a year, and then sell them at a profit over the next five years. His top tip is that you have to dress the part – “Showing up to meetings a la Wall Street would not be effective” (Finews)
JPMorgan continues to trim its sails to the prevailing wind – Michelle Chen is moving from her former job as co-head of Chinese technology, media and telecoms investment banking to be the North Asia head of “23 Wall”, a team that sits between wealth management and the investment bank to provide bespoke services to private banking clients. (Bloomberg)
CFA examinations have resumed in Ukraine, and testing for the February cycle is going on now. Over 1000 Ukrainians have taken the ACCA exams online over the last year. (Financial News)
A new policy on the part of New York state prosecutors will give leniency to firms, including banks, which make “voluntary self-disclosure” of their own misdeeds. The policy is for companies, and doesn’t extend to inviduals, and it isn’t clear how it might interact with the sometimes lucrative whistleblower programs run by other government agencies. (Bloomberg)
Liyann Seet is a partner at Sunova Capital Management who also runs a yacht charter firm and is “passionate about sustainable investment”. She is personally helping to save the planet by providing “environmentally-friendly biodegradable utensils for food consumption” and she doesn’t allow plastics and balloons on chartered yachts. She’s also considering buying an electric Bentley. (CNA Luxury)
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