The Brexit bonus is baaack JPMorgan. The bank has decided to take advantage of amended UK legislation to allow the payment of bonuses of up to ten times basic salary to risk takers (senior staff) at its London branch (compared to twice under the old, EU derived regulations). It is similar to, although subtly different from, the policy change that has already been implemented Goldman Sachsand it suggests that JPM may have slightly different priorities and strategy than its rival.
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Goldman’s move came in the context of a decision to bring UK bankers into a “consistent global remuneration framework”. For Managing Directors (MDs) at Goldman Sachs in London, the Financial times reports that this meant a previously unreported and likely dramatic reduction in base salary (to bring them in line with New York), combined with a maximum bonus-to-base ratio of 25 times (which would be necessary to bring total compensation to high level). end).
JPMorgan takes a different approach. It does not seem to aim for complete harmonization with New York; the ratio of bonuses to salaries is only 10:1. The implication is that while Goldman Sachs’ bonuses could now rise 12.5 times, JPMorgan’s will only rise up to 5 times. Unlike Goldman, Bloomberg reports that JPMorgan’s British bankers will not see major immediate cuts to basic pay. And JPMorgan’s US bankers temporarily seconded to London will be allowed to keep some of their ‘role-based allowances’ and other basic-level equivalent pay.
According to the company, this is “one of the most attractive and balanced pay structures in the sector”, and “a fixed salary will be highly competitive”; the implication is that the bankers preferred it. It seems reasonable to assume that housing costs are part of the story; at the higher end, London is an even more expensive market than New York, and while the banks like to keep their rainmakers ‘lean and hungry’, someone worried about their mortgage payment every month will find it difficult to secure deals to concentrate. .
JPMorgan may be in a slightly better position to offer this kind of generous fixed compensation structure than other banks. When revenues are volatile, it makes sense to do as much as possible to make costs flexible. This is why boutiques often pay extremely low base salaries. Because JPM has such a large and stable retail and commercial banking business, it does not have to worry as much about the investment banking market cycle impacting its ability to pay dividends and spend large amounts of money on technology to give. The European bonus cap wasn’t as big of an issue for JPM as it was for the purer investment banks, so there’s less pressure to return to an all-American compensation model. This could allow JPMorgan to gain a workforce advantage in the London market.
On the other hand, bankers are essentially dreamers. Many in London will enjoy the opportunity to earn a higher bonus. On that basis, one might assume that Morgan Stanley will do something similar to Goldman Sachs, that Bank of America is likely to follow JPMorgan, while Citi – which is intrinsically a large stable bank, but which may want to prioritize cost flexibility at the moment – can go either way.
Elsewhere, Rhian-Mari Thomas, a former leveraged banker at Barclays, now thinks she, and people like her, could be Britain’s secret weapon when it comes to the transition to a low-carbon economy. She heads the Green Finance Institute, a government-backed agency that seeks to create innovative financial products based on green technology.
The idea seems to be that the US has allocated $369 billion in tax credits for green investments – poor old Britain doesn’t have that much money, but it does have a lot of troublesome (and until recently underemployed) bankers. And if your bankers are sufficiently resourceful and hardworking, you can create your own equivalent of investment loans.
It is a possibility. So far, the initiative has launched a fund focused on electric vehicle charging infrastructure, with more to follow in the areas of domestic energy efficiency and sustainable aviation fuel. They hope to generate the kind of performance records that will entice larger mainstream investors to join the party on a much larger scale.
Looking further ahead, they suggest that the government can do even more to encourage private sector investment, by providing guarantees to reduce risk. That may sound like the taxpayer is taking on all the downsides while missing out on the upside, but come on: when was the last time something designed by British bankers needed an expensive public bailout?
In the meantime …
How serious is the #MeToo problem in the City of London? It cannot be taken as a great sign that when the FCA sent a survey to 1000 banks and brokers, 261 of them failed to respond completely and a further 36 asked for an extension. (Bloomberg)
Apparently 68% of investment banks waste 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-renewed license agreement, and then moving jobs. (Retail Banker International)
Many LP agreements between asset managers and their clients may involve travel and legal expenses being charged to the client. As you might expect, this means that the investment managers are taking on many more private jets than they would have if they were footing the bill themselves. (Institutional investor)
A piece of research to save for when the right person annoys you – German professors find evidence of the ‘Napoleon effect’ as short football referees tend to give harsher penalties to taller players. (Research Gate)
Matt Barrett of technology consultancy Adaptive thinks the stock market is on the cusp of another revolution as fundamental as the invention of high-frequency trading. He points out, among other things, that if the big tech companies manage to move everything to the cloud, the ‘low latency’ strategies of locating your server closest to the exchange will be obsolete. (Financial news)
An Arizona attorney thought bringing private equity capital into his industry would lead to lower fees, higher professional standards and charitable benefits. Guess how that worked? (Business insider)
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