Elite 'superbankers' get record bonuses - but rest are left crying into their Peroni
All but the absolute elite are expected to be disappointed by this year’s payouts
Jim Armitage is the City editor of The Independent and London Evening Standard group of newspapers. He has been a reporter and editor for more than 20 years and was recently shortlisted for the Press Gazette financial journalist of the year and The Society of Editors financial journalist of the year awards. He contributes news, investigative reports and comment to the Independent titles plus a daily column in the Evening Standard.
Friday 10 January 2014
If you’re planning on hitting the bars of the City and Canary Wharf in the coming weeks, expect to see many a banker crying into their Peroni. Bonus season is upon them, and it could be one of the most divisive in years as London’s highest flying “superbankers” win big at the expense of the rank-and-file.
City bankers make millions from advising on high-profile takeovers and financing deals, but for many, the most nerve-shredding negotiations are taking place with their own bosses right now as they try to secure their annual bonus.
These discussion are reaching crunch point at US banks such as JP Morgan and Goldman Sachs, where staff will be informed of their 2013 “comp” – shorthand for bonus - ahead of their annual results next week.
Bankers at European firms such as Deutsche Bank, Credit Suisse and UBS will have to wait until early February, but they will take their lead from Wall Street, using any evidence of a bumper payout to broker a better deal. But disappointing results and ongoing restructuring in an industry still recovering from the financial crisis of 2008 and the European crisis of 2011 have added tension to discussions.
A return of lucrative mega-deals in 2013, including Vodafone’s £84 billion sale of its US mobiles division and the Treasury’s £3.2 billion disposal of Lloyds bank shares, resulted in huge fees for a handful of leading banks and their elite “rainmakers”.
But the riches are likely to be spread more unevenly than ever, with a few so-called superbankers taking home up to $10 million while the toiling masses below them are left nursing the same pay as last year or possibly less. A sizeable minority will end up with what is known in the trade as a “doughnut” – City slang for a Big Fat Zero.
Those in line for payouts of $5 to $10 million are said to include Karen Cook of Goldman Sachs, and JP Morgan’s Ina De and Viswas Ragavan. City sources said the biggest earners on takeover deals were likely to be those who advised on Vodafone’s sale of its stake in the US mobiles giant Verizon. UBS’s former deals kingpin Simon Warshaw and Goldman’s Cook are likely to pocket several million dollars for that one transaction alone. Top staff at the advisory firm Moelis like Geoff Austin and Caroline Silver will also be paid handsomely. Moelis advised on the Publicis-Omnicom advertising merger and the takeover of Co-op Bank by its bondholders.
Also among the “superbankers” in London with outsize bonuses in the millions of pounds are expected to be Credit Suisse’s Marisa Drew, promoted last spring to the post of co-head of European investment banking, making her arguably the most powerful woman in European banking.
A future star at Goldman Sachs and also heading for a big payout is Lucy Baldwin. Just 28-years-old, she is already one of the most powerful analysts at the bank.
Overall, however, banks continue to struggle to make the megaprofits of old, and bonuses will reflect that. As one senior City headhunter said: “Goldman’s corporate finance department had a record year, but its trading division did badly, so the overall bonus pool has been hit for everybody. It’s the same everywhere.”
The big fines to hit banks like JPMorgan, which lost $6 billion in the London Whale trading fiasco, will also hurt the overall bonus pot.
Meanwhile, faced by the more onerous regulations and heavy overheads for the big banks, some of the biggest dealmakers with the best contacts books have set up shop on their own – a move likely to make themselves even more money. After overseeing the Vodafone deal, Mr Warshaw quit UBS to set up a specialist “boutique” advisory business with former Morgan Stanley titan Simon Robey and Simon Robertson of Goldman Sachs, who made themselves tens of millions of pounds on takeover deals before the financial crisis.
City sources say the gap this year between joy and disappointment will be larger than ever. That’s because the big engine of profit growth – the fixed income trading operations of banks – is in danger of running dry as increased regulation is increasing the cost of trading. Many banks are being forced to close down altogether their commodities trading operations, once a huge source of revenues, while others such as UBS have slashed the size of their fixed income business to remain profitable. Analysts predict that over at Goldman Sachs, a global powerhouse in credit, revenues could fall as much as 21 per cent over the year, denting profits. Stéphane Rambosson, Managing Partner of executive search firm, Veni Partners, said: “Pay will be disappointing for a lot of people this year because overall the industry is under pressure on costs, while the fixed income trading businesses, which are so crucial to big banks' profits, had a tough year.“
Banking pay has become a battleground since the financial crisis of 2008, by which time high finance had stopped playing by the rules adopted by most other industries, putting the pay of its top performers before the returns of its shareholders. Much has changed, as guaranteed cash bonuses that rewarded bankers regardless of performance were outlawed in favour of deferred deals that included a bigger proportion of pay-outs in shares. And with banking profits hit hard in recent times, the heyday of the multi-million pound payout appeared to be over. To compound bankers’ woes, from 2014, a new European Union law will prevent bankers earning more than 50 per cent of their annual salary in bonus, or 100 per cent with shareholder approval. That makes this year’s bonus round something of a last hurrah.
Faced by such irritations plaguing the megabanks, many of the old-school rainmakers have used the financial crisis as an opportunity to strike out on their own and form their own boutiques, and some of these small independent “shops” are enjoying a bigger piece of the action. These include Moelis, which was launched by its eponymous US founder Ken Moelis in 2007, and which worked as sole adviser to US advertising giant Omnicom on its merger with French rival Publicis over the summer. Meanwhile Simon Warshaw, a veteran UBS banker who advised Vodafone on the Verizon deal, has since left to form a boutique former Morgan Stanley titan Simon Robey and Simon Robertson, a former Goldman Sachs rainmaker. Brothers Yoel and Michael Zaoui who used to spar across the table as dealmakers at Goldman and Morgan respectively, also formed their own company last year. Boutiques do not face any of the pay curbs at the big firms they used to work for, giving the owners the discretion to award themselves whatever they deem fit. Expect pay for the top brass in such boutiques to be counted in the many millions this year.
But don’t expect the winners to brag too much in public, because for every winner, there will be more losers. Plus, rushing out to splurge the cash on a new Ferrari is not seen as good form when the whiff or redundancies and regulation still hangs heavy on the air. Nor is it possible, now that the cash portion of bonuses has been reduced in favour of shares which bankers cannot cash in for years.
Those Bentley and Porsche showrooms in Mayfair, who in the pre-crisis days enjoyed champagne spring seasons thanks to bonus-fuelled bankers, will have to survive once again this year on the largesse of foreign billionaires.
Luckily, there are still plenty of those to go around.
Gold plated: Bull market car regs
Number plates celebrating the return of the bull market have been listed for tens of thousands of pounds on the Bloomberg financial website.
Among others, the number plate BU11 MKT has appeared in the small ads section of the financial news service, priced at £25,000.
Flush bankers can use the code “POSH” to call up the listings, which also include BU11 ESH for £15,000 and CA11 PUT – a reference to trading options – for £25,000.
Thriftier investors can bag themselves a bargain, with BU11 YSH – a snip at £750.
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