Tags: Compensation, contingent capital, Credit Suisse, UBS
Swiss bank annual earnings are here so we might as well check in on what they’re up to with comp. You and I may think of comp in pretty straightforward ways – if you did good, and your employer did good, you get paid well, and if not not – but Credit Suisse and UBS take a delightfully arcane wheels-within-wheels approach, constantly changing how they pay employees to send signals, fine-tune incentives, and optimize regulatory capital. I suppose if I worked there I’d be so pleased by the complexity of the edifice that I’d be okay with otherwise disappointing pay. Current employees may disagree.
Anyway we talked about UBS the other day; per the FT they are handing out bonuses in the form of high-trigger CoCo bonds that get written down to zero if UBS’s regulatory capital falls below 7 percent. The bonds “will pay a market-based interest rate” though that’s not saying much; any interest rate is “market-based” in the sense that it can be decomposed into, like, Treasuries plus a number. Presumably the number here is high.
Credit Suisse’s entry is out today and it is a bit of a retreat from previous years’ glories; here’s how CS describes it in its financial report: Read more »
Tags: Compensation, earnings, Goldman Sachs
If you read a lot of media coverage of Goldman Sachs earnings you get the sense that the most important number the firm reports is average compensation per employee, which this year was a nice oh-so-close-to-round $399,506. I CONCUR, of course.1 Also of interest is the comp ratio, which was only 39% this year, as less of the spoils of Goldman’s labors go to the people in the building doing the labors, and more go to the people providing the capital. Progress!
The analysts on the earnings call were not all that focused on comp, which I attribute to jealousy, but there were some exceptions. Like JPMorgan’s Kian Abouhossein, who pressed the Viniar/Schwartz CFO tag-team about expenses and headcount in Investing & Lending, playing an enjoyable guessing game with the twin CFOs about staffing levels in Investing & Lending:2
I mean, there are only few hundred — I assume there are only a few hundred people running in this division. I can’t believe there’s thousands of — I would be even surprised if it’s 1,000 people. So I’m just wondering why you’re having $2 billion to $3 billion of expenses. Is it interest expenses or is it something else? I just don’t understand why there’s such a big expense level.
Because the few hundred people are paid really well? Other? Dunno. You can guess why Schwiniar might have stalled here (and on a later question about I&L Basel III RWAs); the Investing & Lending business model has gotten some negative attention recently. The problem is basically that it does things like investing and lending, which almost violate the Volcker Rule, or would if it existed, which it doesn’t, yet.
Here is the FT’s Tracy Alloway on Goldman’s earnings: Read more »
Tags: Compensation, Goldman Sachs, investment banks, Mervyn King, taxes
Here is an important cultural difference between the US and the UK that you should, like, stick in the boot of your lorry or whatever: in the UK, it’s apparently not socially acceptable to put off paying bonuses by two months to save your employees five percentage points in taxes. In America, it’s considered perfectly reasonable to die to avoid a tax increase.1
I was not aware of this difference and it seems neither was Goldman Sachs:
Goldman Sachs has backed down from a plan to delay UK bonus payments until after the new UK tax year, which would have allowed bankers to benefit from a cut in the top rate of tax from 50 to 45 per cent. … The idea – first reported by the Financial Times on Sunday – would have seen the payment of the deferred portion of bonuses from prior years delayed from February until after April 6.
News of the plan prompted a flurry of criticism from lawmakers and even from within the banking industry.
Addressing the House of Commons Treasury select committee earlier on Tuesday, Sir Mervyn King, governor of the Bank of England, had criticised the idea.
“I find it a bit depressing that people who earn so much find it would be even more exciting to adjust their payouts to benefit from the tax rate, knowing that this must have an impact on the rest of society, which is suffering most from the consequences of the financial crisis,” Sir Mervyn told MPs. “I think it would be rather clumsy and lacking in care and attention to how other people might react. And in the long run, financial institutions do depend on goodwill from society,” he added.
You can sympathize with Goldman’s misunderstanding here, no? Read more »
Tags: and if you don't like that you can get the hell out of here, Communism, Compensation, Cuba, Jamie Dimon
Jamie Dimon, the CEO of the country’s largest bank by assets, says that regulating Wall Street pay could put us on the road to communism. “We all want an equitable society. We need to have a conversation about what makes it equitable,” the JPMorgan Chase CEO said at The New York Times DealBook conference on Wednesday. “You can go do it the way that Cuba tried. Okay, well, then it will be equitable, but everyone won’t have much.” “If you don’t want a free society, then start dictating what compensation can be,” he added. [HuffPo via Counterparties]
Tags: "as little as $550000", bonus watch, bonuses, Compensation, who knows maybe you like being tied up and beaten with a bag of money you won't get to keep- we don't ask about your personal life
Santa will leave many bankers and traders empty-handed this holiday season. One in five Wall Streeters won’t get a bonus for 2012, according to a closely watched compensation study set to be released next week. That figure is up sharply from last year, when roughly 13% of bonus-eligible employees got no added year-end pay, according to Options Group, a New York executive search and consulting firm that produced the study. In terms of overall compensation, some staff in stocks and derivatives trading are likely to be the hardest hit, as their compensation is set to shrink by at least 20% for the third year in a row, the study found. A stock trader who is a managing director at a securities firm stands to take home as little as $550,000, down 31% from 2011. Sluggish deal activity means investment bankers also could receive a 13% pay cut, the study found. [WSJ]
Tags: bail-ins, Banks, cocos, Compensation, EU
In the war against bankers’ pay the EU has a secret weapon:
Banks should pay bonuses in debt, which would be wiped out if a bank failed, an EU banking report will suggest as Europe attempts to step up the fight against bankers’ pay.
I’ve been sort of fond of this for a while. It’s a way for bankers to eat their own cooking: if you’re a banker, what you produce, more or less, is debt, so you might as well stand behind the basic soundness of that debt by owning lots of it. You can fine-tune this theory – for instance, Credit Suisse circa 2008 produced asset-backed securities, and Credit Suisse circa 2011 produced derivatives-counterparty credit risk, so that’s what its bankers got – but the basics are sound. In particular, if you are a banker, one thing that you don’t produce – that is sort of an unwanted byproduct of your operations, imposed by regulators but not particularly liked by you – is equity, so getting paid in equity is a little perverse.1
There’s a little theoretical tension here, though, which is that there’s also good reason to think that bankers should be the lowest on the totem pole in terms of getting their money back if they blow up their banks. You could just about imagine a bank capitalized with 10% equity, 10% banker-pay junior debt, and 80% senior debt, say, failing and recovering 85 cents on the dollar. So the real debt gets paid off 100%, but where does the 5 cents go? Classically the “debt” that the bankers get is senior to the “equity” that public shareholders get, but it seems a bit rough to pay the nasty bankers before you pay the widow-and-orphan shareholders. Read more »
Tags: Compensation, Mutual Funds, papers
Mutual funds are kind of weird in that they basically aren’t allowed to get paid for performance, so they charge investors a flat percentage of assets under management, so for mutual fund managers looking dapper on CNBC is often more profitable than sitting in your office researching stocks. Still – and perhaps perversely – performance does seem to attract assets, so if you run a mutual fund company there is quite a bit of value in trying to get your portfolio managers to pick the right stocks. There are various ways to do that: you could, for instance, ask them politely to do a good job, or yell at them when they don’t, or build them a treehouse. But, who are we kidding, basically there’s money: if you give them more money for picking good stocks, and less money for picking bad stocks, then you will probably attract good stock-pickers and encourage them to pick good stocks.
I enjoyed this paper immoderately: Read more »