Morning Coffee: The bankers accepting 40% pay cuts to stay in the market. Jefferies has some tough choices to make about its MD hires
One of the most unpleasant things about downturns in investment banking employment is the knowledge that many people who are laid off in a recession are likely to be gone from the industry for good. If you lose a banking job at the wrong moment in the industry cycle, it can be difficult to get back in, even when the market turns back up again. A surprising proportion of the time, banks would rather buy out a load of deferred compensation and pay a headhunter’s fee for someone currently employed, rather than recruit someone who isn’t currently working for one of their competitors.
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There’s not much rational basis for this stigma, but it exists. Perhaps it’s precisely because bankers know that who gets fired and who survives is mainly a matter of luck. That seems like the only possible explanation for the fact that it’s much easier to get a new job if you’re laid off during a boom – which is precisely when your unemployment is much more likely to have been performance related.
But for whatever reason, bankers in a structurally depressed market, like Hong Kong has been for the last few years, tend to get faced with some unpleasant choices. - Whether they have enough savings to last out the slump? Whether they need to find another industry to work in? Or, for the lucky ones, whether to take a worse job – a lower rank, or a less prestigious employer, and certainly less money – in order to remain in the game.
If you take the latter option, the pay cut can be pretty brutal. Global banks like UBS and BNP Paribas attracted hundreds of bankers from domestic and Chinese incumbents over the last decade in Hong Kong, paying Managing Directors (MDs) base salaries of around $500k. That’s compared to no more than $300k at China International Capital Corp. The bonus potential at CICC is also likely to be worse and the ideological study sessions more compulsory. But the fact of the matter is that CICC is currently hiring, and the global banks aren’t. What’s a banker to do?
Unfortunately, the only sensible advice in this situation is to swallow your pride, tighten your belt and try to look happy about being one of the lucky ones. There are far fewer vacancies at the domestic Chinese players in Hong Kong than there have been redundancies at the global banks - it looks like only about 40 people have been able to make the journey back. They will keep their seat at the table, and they’re likely to be toward the front of the queue when things recover. Until then, they'll need to tighten their belts.
Elsewhere in the world, even the perennial optimists on Jefferies’ management team have had to admit that things could be better. Announcing revenues down 8.4% on last year and earnings 15% lower for the first quarter, Brian Friedman said that “The uncertainties that crept in in the last eight to 10 weeks have dissipated [the “confidence and visibility” from the end of 2024]. It hasn’t eliminated it, but blurred it a bit”.
This matters, because Jefferies has been on a recruitment drive like few others for the last five years – the number of MDs has risen by at least 70%. Being a recently hired rainmaker who is, through none of one’s own fault, currently unable to make it rain is a very uncomfortable situation.
Of course, it’s highly unlikely that the current state of affairs is completely outside Jefferies’ planning scenarios. But no bank’s ability to bear economic pain is limitless. At some point, people in North America may end up facing the same painful questions that Hong Kongers have had to deal with.
Meanwhile …
JPMorgan’s quantum computing team have produced “truly random numbers” (as opposed to pseudorandom ones). This will apparently “have applications in trading and security”, such as forecasting tech company earnings. (Bloomberg)
PwC in Hong Kong is delaying the repayment of partnership capital to retiring or departing partners, as it tries to get a better fix on how much needs to be kept back to cover the cost of some recent big audit failures. (FT)
Chris Norman, a former Citibanker who was most recently head of “West Coast Technology” for Wells Fargo, is joining BoA to be head of tech M&A for Americas. (Bloomberg)
Citi have taken the emotionally unsatisfying but almost invariably best course of action, and settled a discrimination case out of court. They are sorry that they weren’t able to retain derivatives VP Maeve Bradley, they don’t admit any liability and now the details of maternity leave and “expected” promotions won’t be worked out in public to the advantage of nobody. (Guardian)
Manfred Knof of Commerzbank shows how it’s done – he was the highest-paid CEO in the company’s history when he was hired in 2021, and he was paid even more last year to leave early when they wanted a different leader to deal with the takeover bid. (Bloomberg)
There is apparently a (recently leaked) Signal group chat for JPMorgan employees who are in revolt against Jamie Dimon and the return-to-office policy, where they co-ordinate resistance and boast about their Reddit posts. (NY Post)
Being a Linkedinfluencer is no longer all about Excel hacks, cringey motivational psychology and desperately trying to get Warren Buffet to notice you. It’s now much more like being a real influencer, with personality and lifestyle content creators. (WSJ)
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