Morning Coffee: Tears and joy and tears at Credit Suisse? The bonus that could make a junior banker worse off
As Vladimir Ilyich Lenin once said, “there are decades when nothing happens, and then there are weeks when decades happen”. You don’t often hear Lenin quoted on a trading floor, but bankers might be able to identify with the sentiment this week. According to veteran US financial reporter Charlie Gasparino, it all got a bit too much for some people at Credit Suisse:
Breaking from a @CreditSuisse employee: “panic, meltdowns, people crying.”
— Charles Gasparino (@CGasparino) March 15, 2023
Or did it? Nobody else picked up this story, there’s no identified source, and although the Credit Suisse share price had an extremely bad day (falling 24% after a core shareholder ruled out buying any more shares) people don’t usually burst into tears over that, no matter how far underwater their stock options may be. There were also stories of deposit outflows, and some (more) senior bankers left, but if Credit Suisse employees were going to shed tears over that, they would surely be dead of dehydration by now.
Bankers are not particularly emotional people; they usually have quite a lot of work to take their minds off things. It takes a lot to make them panic and cry in the office. It takes much less to make them exaggerate for dramatic or comic effect. For what it’s worth, people we’ve spoken to say the atmosphere was more one of complete numbness – “like a frog dropped into water that is slowly warmed up … no one is upset or shocked by anything anymore”, and that sounds more realistic.
In any case, nobody was having a nice day. But later in the evening, there might have been some light at the end of the tunnel. After reported stories that wholesale counterparties were beginning to reject CS on the other side of some transactions, news hit the wires that the Swiss National Bank was going to make a statement.
That’s usually either very bad news or very good news. In the event, it seemed … quite good? In a “statement on market uncertainty”, the central bank said that as far as it was concerned, “Credit Suisse meets the capital and liquidity requirements imposed on systemically important banks” and that “If necessary, the SNB will provide CS with liquidity”. Just to show they were serious, CS is borrowing "up to" CHF50bn (US$54bn) from the central bank and has announced a debt buyback, giving themselves a substantial buffer to meet further deposit withdrawals.
This doesn’t in any way mean that CS is out of the woods; it’s still got a lot to do in order to shore up the confidence of the markets, then there’s the small matter of building back its franchise and addressing the brand damage of the last few years. But for a lot of employees who might have been in a pretty dark place, it’s a bit of hope. Reach out to any friends and former colleagues who you know to be working there; what goes around always comes around. People always remember the ones who thought about them during the tough times, and in the medium term there may be more repercussions from this - not least in terms of an even broader restructuring of Credit Suisse's investment bank.
Elsewhere, the UK budget brought some good news for parents of young children which could turn into some very odd and awkward conversations around bonus time for junior staff. Basically, the Chancellor has introduced a new program to offer free childcare for one and two year olds. It’s a really quite generous extension of the benefit system, which is particularly valuable in London where childcare costs can be absurdly high. But there’s a catch.
The benefit is only payable if neither parent earns more than £100k (US$120k) a year. The Institute for Fiscal Studies says that “The distortions that this can create are among the most severe you will ever see within a tax and benefit system”. If you go from £99,999 to £100,000.01, then your disposable post-childcare income falls by about 13%, and you need to make £134k pre-tax to get back to the standard of living you had before the pay rise.
It's obviously particularly crazy for junior bankers, whose total compensation might be above or below the threshold in any given year, and who won’t even know which is the case until bonus day. Of course, due to their age and workload, not many analysts have children. But for the ones that do, it’s now possible to get a bonus that’s significantly worse than zero.
Meanwhile …
Citi has hired Peter Wikstrom, a former Rothschild MD, to work in its Nordic capital market and advisory business. When added to the recent hires of David Russo and Jens Welter, it seems clear that the ambition to be number one in the EMEA fee table is still there. (Financial News)
It seems almost sacrilegious to use phrases like “nepo” when the context is the Rothschilds, but the fact of the matter is that Francois Pauly has, apparently amicably, left his job as CEO of Banque Edmond de Rothschild, and his place will be taken by the current board chair, Baroness Ariane de Rothschild. (Finews)
“How well are young lawyers paid compared to their professional counterparts, like investment bankers, accountants and private equity analysts?” Law.com finds that for the first three years of employment, law compares surprisingly well with investment banking and private equity – as long as you ignore the bonus. (Law.com)
When people go back and forth between finance and public service, they usually make some noises about wanting to change the world, see a different side of life and so on. Former congressman Barney Frank is as frank as his name about his reasons for joining the board of Signature Bank – “I need to make some money.” (FT)
Some banking names never go away – CLSA has had several changes of ownership but it’s now part of Citic Securities, and its head of Southeast Asia investment banking, Xianjie Boey, is planning to double its headcount. (Bloomberg)
Are techies going to replace bankers as Public Enemy Number One, as the Silicon Valley Bank bailout seems to be seen by some as a giveaway to venture capitalists? (Unherd)
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