Morning Coffee: Some ECM bankers are getting 30% pay rises. Goldman Sachs' CEO made a joke

Of all the product lines in an investment bank, IPOs are possibly the one where the personal franchise of specific employees matters the most.  Even if a bank executes dozens of transactions every quarter, each one of those is one of the most important days in the history of the corporate client. An IPO is a unique, one-time deal; other equity and debt capital markets business and even M&A advisory can be spread about and new banks tried, but the IPO always goes to the bankers that a client trusts the most.

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So, relationships matter. Most of all, the relationships between the “rainmaker” coverage bankers and the CEOs, founders and key investors who make the decision about lead roles.  But it’s also important to have a good reputation in the wider industry, which is what gets you into the lower down – but still lucrative – positions in the underwriting syndicate.  And that doesn’t just go for the big names and managing directors; people put their trust in the entire team, including all the ranks right down to vice presidents and even associates, that everyone will do their job, documents will be produced accurately and to deadline, and that nobody will do anything that jeopardises the deal.  When there is an IPO boom going on, there is hardly any amount of money that’s too much to pay for someone who can keep your franchise respectable.

In the Indian market at present, we are seeing a particularly extreme version of this labour market effect.  The Indian IPO market is on course for a third consecutive record year. This is attracting both new entrants and increased interest from the global bulge bracket.  The incumbent and domestic banks are, naturally, keen to invest previous years’ profits in preserving their market share.  All of which means that the Indian equity capital markets industry wants to create an estimated 300 new jobs, according to recruiters like Sheffield Howarth and Native.

That is quite a lot of headcount to source in a fairly limited talent pool.  It is possible to transfer employees from other geographies, promote internally and even raid neighbouring industries like law firms. But the banks are likely to want to do a lot of poaching from one another, in order to get candidates with that vital local experience and reputation.

And the only way to do that is to pay up.  At present, local headhunters suggest that bankers moving from one firm to another are realising “raise on move” increments of as much as 25-30% of compensation.  This is likely to mean that bid-back payments are in the same order of magnitude, and that local banks will be raising comp for people who don’t move, just in order to keep them happy.

In circumstances like this, banks quickly remember the importance of keeping a loyal team and a strong culture, because it is much easier to retain people if they’re not feeling grumpy and unloved in the first place.  What a pity that they don’t always remember this fact when the market turns back down.

Elsewhere, unlike his predecessor Lloyd Blankfein, Goldman Sachs CEO is not what you’d call an instinctive comedian.  He has a fair line in amusing anecdotes (like this one about changing the GS dress code), and has been known to play a decent straight-man to more flamboyant presenters. But in terms of snappy one-liners, he’s usually been a bit more cautious – his wise-cracks have been more on the level of telling an analyst at an investor day that they can come to dinner because they said something nice about Goldman.

So it’s important to recognise a witticism from Solomon when one comes along.  When he said that the US economy was “only one tweet away” from the risk of recession, he just joking, says Goldman spokesperson, David Fratto. Presumably everyone is laughing. 

Meanwhile …

Fintech banker Jeff Gido was nearly lured away from Goldman Sachs in 2018, close to the peak of the last fintech boom.  It possibly reflects the state of the tech and financial cycles that he has now been promoted to be co-Chair of the global financial institutions group. (Bloomberg)

The “brutal war for talent” that Anthropic have apparently started for AI programmers in London is certainly a step up for the industry.  With salary offers around $750k, people will have their heads turned. (Techloy)

MBaer Merchant Bank was launched to take advantage of the big Swiss banks’ increased risk aversion after some big US regulatory decisions ten years ago.  But the trouble with being less risk averse than the competition is, well, the risk.  And after some big US regulatory trouble of its own, it’s now closed. (FT)

It’s too early to say whether the Iran conflict is as much of an “ill wind that blows some good” as the Russian invasion of Ukraine was, but so far it appears that the majority of specialist commodity traders have got on the right side of most of the big trends, and have navigated between the tweets and Truths to make profits at least comparable to the 2022 bonanza. (Bloomberg)

Lawyers in the restructuring practice of Sullivan & Cromwell are apparently in for some “enhancements” to their training process, after a senior partner found himself in a court apologising for a filing that contained more AI hallucinations than you’d ideally like to find in something that had cost thousands of dollars per billable hour. (FT)

Some reviewers of the video game “Crimson Desert” found that the medieval combat mechanics weren’t as exciting as the potential to pretend to be a hedge fund manager while investing your spare gold. (Khaleej Times)

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