Morning Coffee: JPMorgan's enormous pay package enticed BofA's special banker. The trader who beats the Street from a garage

As the advertising guru Bill Bernbach once said, “a principle isn’t a principle until it’s cost you money”.  It’s a proverb that the human resources departments of many investment banks will recognise.  Setting sensible policies with respect to compensation, promotion and even compliance is one thing, but enforcing those policies when they risk losing an important hiring battle is another.

Reuters suggests Bank of America is sticking to its principle.  Despite increasing its ambition in investment banking and steadily hiring over the last few years, BoA has for the most part kept to a bonus structure which emphasises deferred compensation and equity grants over immediate payouts.  According to European regulatory disclosures, its Material Risk Takers (the highest paid staff) only got 20% of their last bonus in non-deferred cash, compared to an average for the rest of the bulge bracket closer to 40%. 

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This is good news for shareholders and management, as it should mean that BoA rainmakers are more likely to be locked in and harder to poach. As long as the share price keeps going up (like it has for the last two years), it’s pretty good news for employees too.  But, it does make things a little difficult for bankers who have mortgages and college tuition to pay (or, indeed, expensive watches and yachts to buy). And many bankers just like to be paid in immediate cash; lots of things can happen in this industry, and another proverb holds that “a bird in the hand is worth two in the bush”.

According to some employees quoted by Reuters, the BoA compensation structure may have been a factor in some high-profile departures, like those of Kevin Brunner, David Fishman or Mike Joo.  It hasn’t stopped them from hiring other rainmakers (like Jason Rowe, George Murphy and Alban de la Sablière), but apparently the overall recruitment position was sufficiently unsettling for Faiz Ahmad, the head of global investment banking, to hold a town-hall meeting with 50 top bankers in order to reassure everyone that the bank hadn’t lost its ambition.  As the company told Reuters, “We have strong momentum across our global business … We have recruited dozens of senior bankers this year from our major competitors”.

The loss of BofA's particularly special banker, Amy Lissauer, to JP Morgan appears to have hit particularly hard.  Her activist defence team was something of a crown jewel for BoA, and JPM certainly didn’t lose any time in sending out a press release to boast about hiring her. The fact that she left in the same week that Mike Joo resigned as co-head of investment banking must have made it hit somewhat harder.  And it’s always disquieting when an employer has clearly tried their hardest to match a competitor’s offer, but been unable to stretch quite as far.

On the other hand, these things are always happening in investment banking; industry churn is what keeps the market honest.  We wouldn’t expect Bank of America to change their pay philosophy, and it might even be a bad sign if they did.  Although Bill Bernbach didn’t say this, giving up on a principle usually costs you more money in the long term.

Elsewhere, you would normally think that in order to be a profitable macro trader, you need a Bloomberg Terminal, a low-latency connection and possibly a dozen economists and analysts.  The high cost of establishment is one of the reasons why people join “pod shops”. However, Brian Golden has made $2m out of inflation trading with a laptop, an Excel spreadsheet and a standing desk that he made for himself out of cinder blocks in his garage.  As he says, if he was one of the many bank forecasters who he outperforms, “I would be humiliated. I would be so embarrassed”. 

But Wall Street can save a little face.  Golden makes his money by trading on the Kalshi prediction market for each month’s CPI release.  His spreadsheet is made up of a lot of formulae which reproduce the official calculation, and which allow him to be very precise about the current month’s index. It’s not quite the same thing as trying to forecast inflation a year ahead, and to make trades in professional size on economically meaningful markets.  Nevertheless, Morgan Stanley is apparently going to use Kalshi data in its own forecast model, although they aren’t yet going to be copying Golden’s spreadsheet or his desk design.

Meanwhile …

Laura Janssens, the head of investment banking at Berenberg is leaving to “take a break from the industry before pursuing other challenges”. It’s been an exhausting time at Berenberg with a lot of top management turnover; she’ll be replaced by Gunnar Regier who joined the board two weeks ago. (Financial News)

It seems to be a trend in the market that whenever things get really sticky, humans take market share from automated venues.  The latest piece of evidence is in the euro repo market – as the Iran War made people rush for cash, voice traders’ share went up by 2.5pp. (Bloomberg)

Employment data seems to suggest that banks are indeed cutting junior roles as a result of AI, but that this is all happening in commercial and retail banking – junior roles in investment banking and capital markets are, if anything growing faster than they were before ChatGPT came out. (Revelio)

Martin Shkreli, the notorious “pharma bro” was banned for life from owning shares in the pharmaceutical industry in 2017. The regulators have recently alleged that he’s been trading them on a livestream for his YouTube channel.  (WSJ) 

The New Zealand investment banking market might be a small pond, but there’s a lot of fishing going on; after losing several staff to Barrenjoey earlier in the year, Jarden have now taken two managing directors from Forsyth Barr. (Bloomberg)

“If you’d have asked me 10 years ago the stuff that I was doing today, I’d would’ve said you’ve lost your mind.”  That might be a slightly concerning quote if it came from a banker, but actually it’s from a manufacturer of deal toys, referring to the impact that AI design and 3D printing have had on the desktop kitsch industry. (Fast Company)

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