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Morning Coffee: Angriest bankers to get the biggest bonuses. A nurturing hedge fund chops portfolio managers

There are perhaps two certainties in investment banking compensation.  One is that everyone thinks that they have been hard done by, and the other is that the squeaky wheels get oiled.  These two facts play together, of course – one of the reasons why bankers complain so much about what other people would regard as extremely generous bonuses is that this is the way to get even more generous treatment next year.  As an old proverb has it, the only three words you need to know to discuss your annual bonus letter are “that’s”, “not” and “enough”.

This kind of attitude is not exactly calculated to endear bankers to the general public, but the evidence shows that it delivers the goods.  In the 2024 eFinancialCareers compensation report, it was noticeable that Debt Capital Markets (DCM)  bankers were among the least satisfied with their bonuses – three quarters of them were dissatisfied, with only equity research, risk and compliance staff feeling more unfairly treated. Now the latest Johnson Associates survey is out, and the early estimates are that DCM bankers are forecast to get the best compensation increases of all – up 25% on this year.

The forecast increase isn’t even compared to a low base.  According to the same eFinancialCareers report, DCM was one of the best sectors to be in for this compensation round, with average bonuses up 15.5%.  It seems like a virtuous circle – the more you get, the more you want, and the more you want the more you get.

It’s not really a matter of greed, though.  The seeming negative correlation between pay and satisfaction is really more of a timing effect.  Last year, DCM businesses were one of the few bright spots in an otherwise extremely forgettable revenue year.  That’s why they got paid up compared to other sectors, but it’s also likely that most firms will have carried out significant redistribution from DCM to other teams’ bonus pools.  If you’ve had a record breaking year, but are “only” looking at a 15% increase, it’s easy to see how you might feel dissatisfied.

Equally, the reason why DCM bankers are likely to be among the best paid this year has only a little bit to do with anyone’s subjective feelings about justice, and much more to do with the fact that many of them will have an alternative bid. As well as the private credit industry, several banks are trying to expand their DCM teams, and anyone who cut headcount last year will be scrambling to build their franchise back.

Elsewhere, another truism of the financial sector is that if you want loyalty, get a dog. Point72 had previously seemed like a kinder, gentler kind of hedge fund pod shop, with employees encouraged to “go to a place of vulnerability” with their stock picks. And maybe it is, but it is still a pod shop, and that means regular culls.  So far, at least seven portfolio managers have been let go, including one eleven-year veteran.

Point72 says that “the volume of departures in the unit is consistent with past years, and there have been about the same number of portfolio managers exits as there have been hires and promotions this year”.  But out of about 100 managers, 7% turnover in slightly more than four months feels like a lot.  It seems that rumours of Steve Cohen gradually chilling out as he got older might have been overstated.  And that in money management as in baseball, it doesn’t matter much whether you win or lose, as long as you win.

Meanwhile …

One of the problems with cutting staff in a downturn is that it’s a lot more expensive to hire them back in an upturn; if you have to reverse strategy you can end up spending a lot more than you saved.  In 2020, HSBC’s rates trading franchise was one of the first targets of a big cost cutting exercise; now they’re hiring again to build the business back. (IFR)

The FDIC’s internal investigation into its internal culture is back and it seems really damning; as well as the allegations of strip clubs and excessive drinking that came out earlier in the year, there’s evidence of harassment, bullying and even verbal abuse from its chairman. (WSJ)

One possible career move for equity analysts if they get tired of banking is to move over and use their industry knowledge in the industry itself.  Andrew Baum has gone from Citi to be the “chief strategy and innovation officer” at Pfizer. (Pharmaphorum)

Because it was early to deregulate its electricity grid, and because it has a high proportion of volatile renewables in its generation, Denmark became a mini-hub for energy trading early on.  Now Balyasny is going to set up a unit trading power and natural gas there. (Bloomberg)

“Figgie”, the card game invented at Jane Street to teach intuition and concepts of trading, now has a mobile app so you can practice playing it at home. (FT)

Matt Bergwall was a university student in Miami who had previously interned at a fintech firm.  But it turns out that he was supporting his yachts and party lifestyle not by working on Wall Street South, but by being heavily into online merchant refund frauds. (NY Magazine)

Combining all the attractions of a flatshare with those of a co-working space, the “Founder House” is the latest San Francisco trend to come to London’s fintech sector. (Sifted)

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AUTHORDaniel Davies Insider Comment
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    Coffee Reader
    9 May 2024

    Hi Morning Coffee ,

     

    I certainly enjoy receiving and reading the daily ‘Morning Coffee’ bulletin – a great daily read!

     

    However my slight irritation is why us readers are emailed the same thing twice every day, - the initial ‘Morning Coffee’ email and then later in the day the ‘Today’s top news you might have missed…’ email.

     

    Inbox email management is a never ending burden, as I’m sure you too will have experienced.

     

    Similar to my private email being constantly bombarded two or more times daily by some arbitrary retailer from who I may have purchased a lamp shade in the past ….. … my finger starts to twitch with an urge to hit the unsubscribe button to ameliorate the inbox deluge.

     

    … just a friendly heads up and ask … as I'm sure some other readers feel the same way too.

     

    Morning Coffee reader

     

     

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