The Brexit bonus is fine JPMorgan. The bank decided to take advantage of the changed UK legislation to allow bonuses of up to ten times base salary to be paid to material risk takers (senior staff) in its London office (compared to double under the old EU-derived regulations). It’s similar, if slightly different, to the policy change he’s already made Goldman Sachsand suggests that JPM may have slightly different priorities and strategy than its competitor.
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Goldman’s move comes in the context of a decision to bring UK bankers into a “consistent global pay framework”. For Managing Directory (MD) at Goldman Sachs in London Financial Times states that this meant an as-yet-unannounced and likely dramatic reduction in base salary (to bring them in line with New York), combined with a maximum 25x bonus/base ratio (which would be necessary to keep total compensation at a high end).
JPMorgan takes a different approach. It does not appear to be a complete harmonization with New York; the ratio of bonuses to salaries is only 10:1. This means that while Goldman Sachs’ bonuses could now increase 12.5 times, JPMorgan’s bonuses will only increase up to 5 times. Unlike Goldman, Bloomberg reports that JPMorgan bankers in the UK will not see big cuts in basic pay immediately. And JPMorgan’s American bankers temporarily posted to London will keep some of their “role allowances” and other base-equivalent compensation.
According to the company, this is “one of the most attractive and balanced salary structures in the industry” and “the fixed salary will be very competitive”; it follows that the bankers preferred it that way. It seems reasonable to assume that housing costs are part of the story; at the high end, London is an even more expensive market than New York, and while the banks like to keep their raincoats “skinny and hungry”, it’s going to be hard for someone worrying about their mortgage payments every month to focus on deals. .
JPMorgan might be in a slightly better position to offer this kind of generous fixed pay structure than other banks. When revenues are volatile, it makes sense to do your best to keep costs flexible – which is why boutiques often pay extremely low base salaries. Because JPM has such a large and stable retail and commercial banking business, it doesn’t have to worry as much about the investment banking market cycle, which affects its ability to pay dividends and spend huge sums on technology. Europe’s bonus cap has not been as much of a problem for JPM as it is for investment banks with cleaner operations, so it has less pressure to return to a full US-style remuneration model. As a result, JPMorgan may gain a recruiting advantage in the London market.
Bankers, on the other hand, are fundamentally dreamers. Many in London will relish the chance to get a higher bonus. Based on this, one would guess that Morgan Stanley will do something similar to Goldman Sachs, Bank of America will more likely follow JPMorgan, while Citi – which is inherently a large stable bank, but which might want to prioritize price flexibility at the moment – may go both ways.
Elsewhere, Rhian-Mari Thomas, a former finance banker at Barclays, now thinks she and people like her could be the UK’s secret weapon in moving to a low-carbon economy. He is in charge of the Green Finance Institute, a government-backed agency that seeks to create innovative financial products based on green technologies.
The idea seems to be that the US has earmarked $369 billion in tax credits for green investment – poor old Britain has nothing of the sort, but has plenty of dodgy (and until recently underemployed) bankers. And if your bankers are resourceful and industrious enough, you can make your own equivalent of investment credits.
It’s a possibility. So far, the initiative has launched a fund focused on EV charging infrastructure, with more to come in domestic energy efficiency and sustainable jet fuel. They hope to generate the kind of performance records that will entice larger mainstream investors to join the party at a much larger scale.
Furthermore, going forward, they suggest that the government could do even more to spur private sector investment by providing guarantees to reduce risk. It might sound like the taxpayer takes all the downside but misses out on the upside, but come on – when was the last time something designed by British bankers needed a costly public bailout?
Meantime…
How serious a #MeToo problem does the City of London have? It is not a great sign that when the FCA sent out a survey to 1,000 banks and brokers, 261 did not respond at all and a further 36 asked for an extension. (Bloomberg)
It appears that 68% of investment banks are wasting up to a quarter of their IT budget on software that hardly anyone uses. This is usually the result of someone requesting a product, entering into an auto-renewing license agreement, and then moving the job. (Retail Banker International)
Many LP contracts between investment managers and their clients allow for travel and legal expenses to be billed to the client. As you might expect, this means that investment managers will take far more private jets than they might have if they raised the money themselves. (Institutional investor)
A bit of research to save for when the right person pisses you off – German professors have found evidence for the ‘Napoleon effect’, where smaller football referees tend to award harsher penalties against taller players. (Research Gateway)
Matt Barrett of technology consultancy Adaptive thinks the stock market is about to undergo another revolution as fundamental as the invention of high-frequency trading. Among other things, he points out that if the big tech companies manage to move everything to the cloud, the “low latency” strategy of placing your server as close to the exchange as possible will become obsolete. (Financial news)
The Arizona lawyer believed that bringing private capital to his industry would lead to lower fees, higher professional standards and charitable benefits. Guess how it turned out? (Business Insider)
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