It has seemed somewhat odd for a while that investment banks are constantly increasing the salaries of junior bankers, without increasing the base salary of the senior rainmakers who actually bring in the money. Now Bank of America has started doing something about the anomaly; base salary increases from $400,000 per year to $500,000 for Managing Directors of the Investment Banking Division (IBD) and Markets, with Directors also receiving a $100,000 increase from $250,000 at $350,000.
Examination of comparable salary data that banks must file with the US Department of Labor when sponsoring H1-B visas suggests the move could put the BoA back on the cutting edge. Morgan Stanley appears to be paying $400,000. Goldman Sachs has mostly done the same, although there have been a few reports of over $500,000 recently. JP Morgan seems to declare $495,000 as the standard for New York. Other big banks haven’t filed enough MD H1B applications in the past year to be sure, but it looks like $500,000 could be the new $400,000 on Wall Street.
This kind of movement is not necessarily easy to interpret. For one thing, it’s actually a relatively cheap way to keep people happy. Even the biggest banks don’t have so many CEOs that paying them an extra $100,000 will make a measurable difference to the P&L.
But on the other hand, the very fact that it is not so important for the employer suggests that it might not be considered so important for the bankers either. Unless they are suffering from a “bonus illusion,” Bank of America doctors will be aware that an extra $100,000 on the fixed element is not the same as an extra $100,000. on total compensation. Although the CFO promised BoA intended to be “very competitive” on compensation, that’s hardly a guarantee. Next year’s bonus pool will be fixed next year, and there’s not much to be done about the fact that there is no visibility in January on income in December.
If they are sensible, then wWhen a revenue-generating employee considers changing jobs, they think about their total medium-term revenue potential. The reduction in leverage implicit in the structure makes their earnings less volatile from year to year, but that’s a secondary consideration. Even risk reduction is by no means guaranteed. In a mild downturn, it can be reassuring to know that you’re guaranteed half a million dollars, but in a real bear market, a high fixed cost can feel like a target painted on your back. That’s why some companies—Jefferies is a notable example in H1B data—choose to pay physicians significantly lower base salaries, which make up total compensation with larger and more differentiated bonuses.
Elsewhere, the dramatic principles of pride and nemesis dictate that if you are promoted on the basis of your risk management expertise, the first few months of your tenure as CEO will inevitably be marked by a one-time big loss. CS Venkatakrishnan at Barclays can probably thank his lucky stars that the gods only demanded a $125 million tribute.
Compared to disasters Venkat has seen in the past, such as the $6 billion “London Whale” at JP Morgan, this trade is relatively straightforward. Barclays – and Deutsche and Morgan Stanley, which apparently lost slightly less – had provided currency hedging to allow a private equity client to lock in the exchange rate on a buyout it was funding. The cover had a built-in option for the customer to cancel free of charge if their agreement failed. It did, leaving the Barclays forex desk on the wrong side of a large exposure to the Swedish krona.
Although troublesome, these things happen in the most orderly families. They might, however, say something about the state of the cycle. Trades like these are not meant to be risky; it is a strategy to improve margins on otherwise simple IBD activities. And as such, they’re exactly the kind of thing where, when the investment bank gets competitive, the markets part starts to stretch its risk tolerance. That, rather than the headlines or the amount of money lost, might be something Venkat should be worried about.
During this time …
Not necessarily the most adult way to do your stock picking, especially since the initial idea came from a sarcastic tweet, but the ETF that aims to do the opposite of ARK’s Cathie Wood has performance difficult to contest this year. (Bloomberg)
UBS bought Wealthfront, the American wealth management fintech, apparently as a way to future-proof its wireline brokerage business, as young wealthy people prefer to interact online and via devices. (WSJ)
“Naïve entrepreneurs”, politically exposed persons and “compliance-averse financial advisers who have been driven out of private banks”. Looking at the state of affairs in Zug, the Swiss “crypto valley” portends trouble even if bitcoin price improves. (FT)
BTIG is serious about its ambitions to expand into European institutional equity trading; they hired Andrew Vass, previously head of EMEA sales trading at Goldman Sachs. (The Exchange)
Citi is to refurbish its main office tower in London, a project that will take three years and require all staff to move to its other building nearby. When they return, the building will have a “winter garden and health gardens” and numerous shared work spaces; it looks like the space is suitable for long term remote work but not necessarily long term COVID. (Bloomberg)
Bank of America is currently considering which teams could be moved from Hong Kong to Singapore as part of a contingency plan. The 21-day quarantine period appears to affect the viability of using the city as a regional hub. (FT)
Once upon a time was the future… Diem, formerly Libra, formerly Facebook’s attempt to change the face of finance with its own stablecoin, is in talks to try to sell off its IP assets and return cash. money to its backers. (Bloomberg)
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