You were warned: when JPMorgan cut compensation in its investment bank by 8% in the third quarter and when operating expenses in Goldman's markets division increased by only 2%, it was already obvious that pay probably wasn't going to keep pace with revenues in 2020. Now it's official. Well, sort of.
Banks aren't saying anything on the record, but the Financial Times has spoken to various unnamed sources in the U.S. banks that reported their results last week and the verdict is clear: while it may have been a great year for revenues, the same will not apply to compensation.
Banks have their reasons and these are already being communicated to staff. At Bank of America, one executive told the FT that the "softening-up" process that prepares people for lower-than-expected bonuses has already begun.
This year, softening-up is based on at least five different factors elicited by the FT in its conversations with the banking executives who've formulated them. Firstly, sales and trading divisions and some investment bankers may have done well, but many banks are also facing the possibility of big loan losses as a result of the virus. -Traders can't expect huge bonuses when the consumer and corporate banking divisions have set aside $48bn to cover soured loans. Secondly, once a few banks pay moderately, it's permission for the rest to do the same - a Citi exec said the bank is "conscious" of the need to remain in-step with peers. Thirdly, some areas of investment banks haven't done well either. Who will subsidize the poor performance of bankers in the M&A division? Fourthly, traders' exceptional year wasn't the result of individual trader talent, but of the Federal Reserve and other central banks both standing and being willing to pump money into the market, and who deserves to get paid for that? And lastly - and in relation to European rather than U.S. houses - most European banks are still prohibited from paying dividends to shareholders, and it wouldn't be a good look to bathe employees in liquidity while shareholders get nothing....
If you repeat these reasons as a morning mantra, you might even be pleasantly surprised in early 2021.
Separately, a former executive director at UBS described the moment it became apparent that she had become subsumed by her job. Sarah Dennis, a former head of 'control framework and operating model strategic change' at UBS, told the Sunday Times she went to see a career advisor to explore some alternatives. However, when asked to describe her dream role, she couldn't conceive of anything at all. “I thought about it for a week and went back and basically described the same job I was doing — but in an office with bean bags. That’s when I realized I had become institutionalized.”
Ultimately, Dennis was able to discover a buried passion for books. She left UBS to work behind the counter of a national chain of book retailers and then bought a bookshop of her own. “I love it,” she said. “Best job in the world.”
Sergio Ermotti's pet hates: “Generally speaking, I’m open to criticism, but what I don’t like is people who are superficial and not well-informed... If there is one thing I really hate, it’s hypocrisy . . . For me, it is one of the worst malaises in our society.” (Financial Times)
Russian bank Sberbank wants to reenter investment banking by boosting its trading capabilities and getting back into the capital markets business after an absence of several years. (Intellinews)
Traders at Barclays must certify they work in separate rooms to housemates. Morgan Stanley bankers are using laptops where every key stroke is recorded. (Bloomberg)
HSBC might shrink its French corporate client base by 20%, or 40 clients, as part of its cost-cutting drive. (Bloomberg)
New Jersey's proposed high speed trading tax has been cut from .25% to .001%. (Bloomberg)
How professional spreadsheet investigators audit spreadsheets. - 'One basic test is to change the inputs and see if the outputs react as expected, perhaps putting in extremely high figures or random letters.“I would try and look at it and see if I could understand how it works without the person telling me.”' (Wired)
Singapore bankers can now have their wages cut if it prevents layoffs. (Bloomberg)
DE Shaw is opening a Singapore office. (Bloomberg)
World Bank Chief Economist, Carmen Reinhart: “This did not start as a financial crisis but it is morphing into a major economic crisis, with very serious financial consequences.” (Bloomberg)
Women are under pressure to look pretty on Zoom calls. (The Conversation)
Matt Levine, "the most inoffensive person in finance", wakes up at 5am every day to write Money Stuff. (New York Times)
How to have a side hustle as a developer. (Medium)
The Deutsche Bank whistleblower who received $8m from the SEC because it had been extracted from “Deutsche’s shareholders instead of the managers responsible,” is going bankrupt. (Financial Times)
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