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Morning Coffee: Bank which used to pay as well as Goldman Sachs is demoting MDs. Rebellious junior bankers want MDs punished for long working hours

Not so long ago, China International Capital Corp was a great bank to work for – it had strong share in a booming market, and a reputation for paying huge bonuses in order to attract and retain top talent from the global investment banks.  But times change.  As well as government measures aimed at curbing bankers’ conspicuous consumption, CICC has had to bear the impact of an incredibly severe deal drought.  Profits were down 45% last year, and the Shanghai and Shenzen stock exchanges haven’t approved a single IPO so far this year.

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So CICC is looking at its expensive bankers and asking some tough questions.  A new performance ranking system is being brought in with five categories and “stack ranking”.  Under the new system, 20% of bankers are going to get a pay cut and 10% are going to get dropped by a whole rank – VPs go back to Associate, Directors to VP and Managing Directors (MDs) back to Executive Director.  Only the top 5% can think about promotion.

Of these cuts, the most controversial is likely to be the MDs who are getting reduced back to the ranks.  It’s generally assumed in banking that when you’ve reached the top of the tree, that’s where you stay until you retire.  A rainmaker can’t go back to doing administrative tasks alongside former subordinates  - not only would it be psychologically intolerable, the loss of face would itself be damaging to anyone’s personal franchise.  And yet, one in ten MDs at CICC are going to have to be told to do so.

The expectation seems to be that they will mostly quit rather than accept the indignity, something which would be much more convenient under Chinese labour laws. But that’s by no means a sure thing. Even for the best bankers, the labour market isn’t good anywhere in the whole APAC region; for those identified as underperformers it’s going to be much worse.  Anyone resigning right now is going to be leaving the industry, potentially for quite some time.

So Chinese corporate clients can expect to be informally sounded out quite a lot over the next few weeks, about possible vacancies in investor relations, or strategy and business development jobs and the like.  And it’s entirely possible that some CICC bankers will just swallow the bitter fruit and take the demotion.  In normal times, it’s quite easy to communicate to MDs that they’re not wanted any more – a slightly worse bonus than they were expecting, the promotion of a close rival or even just a meaningful look.  But these are, to say the least, not anything like normal times in the Chinese investment banking industry.

Elsewhere, the sudden death of Leo Lukenas continues to shock the industry, and it seems that junior bankers are just as unhappy as they were in 2021.  According to a former Deutsche Bank junior “There have been policies in place to improve work-life balance for a long time, but the people who care and want to really implement them are lower in the hierarchy … There are always exceptions, which means policies can easily be circumvented by senior bankers and the main problem is that there’s no accountability around this.”

Today's junior bankers seem more inclined to target specific Managing Directors as the cause of the problems, rather than blaming the overall “culture” of the industry.  As former banker Omar Sadraoui puts it “Have you ever heard of an MD who was fired for working an analyst too hard? It doesn’t happen.  But there’s a generational shift. The younger generation are less willing to accept the way it is”.

In many ways they have a point.  In 2021, when the Goldman Sachs analyst class staged the “Powerpoint Rebellion” they were working 90-hour weeks because deal volumes had suddenly grown incredibly rapidly. 

But if someone is putting in similar hours in 2024, you can be pretty sure that they are working on pitches rather than transactions.  And if an MD with no deals is still doing “pls fix” at 2:30 am and forcing juniors to miss weekends, that does actually seem like something of a skill issue.  In 2021, the banking industry dealt with analyst discontent by increasing their pay. In 2024 that’s less likely, but if they are asking for MD redundancies they might just get their wish.

Meanwhile…

Are short sellers “double-dipping” by cashing in on the SEC whistleblower program as well as making money by shorting frauds?  A law professor argues that the SEC ought to be spending its own money to investigate publicly available data and reserving the program for corporate insiders.  (Institutional Investor)

Investment banks that want to keep pushing their juniors might want to bear in mind that desperation and burnout seem to be one of the biggest reasons why people use ChatGPT in the workplace, even when they’ve been told not to (WIRED)

Scott Kirkby, a FIG and technology banker formerly from Credit Suisse, is the latest hire as Houlihan Loukey builds out its European franchise. (Financial News)

The meeting of emerging market debt, litigation funding and treasure on the high seas has turned out less than optimally for Sir Paul Marshall.  A mission he backed to recover silver bars from a shipwreck has lost a court case which might have forced the government of South Africa to pay full market value to get them back – a settlement has been reached. (FT)

Fernando Rivas, JP Morgan’s former head of North American investment banking, has gone to join former colleague Doug Braunstein at Wells Fargo.  This kind of top level hire often means growth in the near future; Wells has made about 50 net senior hires in the last five years. (Financial News)

According to former financial analyst Shirley Chock, the secret to surviving 100 hour weeks is to start each day with a Tai Chi based exercise in standing up straight. (Business Insider)

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AUTHORDaniel Davies Insider Comment

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