Lunchtime Links: Should you really get 10m if you make 150m in risk- free profit for your employer?
Yesterday, the Sunday Times had an article which included a quote straight from the beating, bloody heart of the investment banking bonus conundrum.
Specifically, it quoted a trader, who said:
"One of the guys on my team arranged a trade the other week that made 150m clean profit for the bank. There is no risk left on the bank's balance sheet and no possibility of that profit disappearing - it is already banked. And the trade solved a big problem for the client. The guy reckoned he would get about a 9m bonus, even allowing for all the new rules. He's now been told he'll get about 3m."
Cue outrage: a) from the banker who thinks he should get more; b) from the public who think he should get far, far less.
Is a 6.7% profit share really fair? Much depends on whether you think the risk is really negligible, whether the trader was really instrumental in earning the profit, and whether earning more than 150k a year is obscene. As the Financial Times points out, how much of the business came in just because the name 'Goldman Sachs' or 'Citigroup' was above the door?
Naked Capitalism argues that the real issue is the fact that bankers have become far more mobile and substantially more self-serving since the demise of partnerships:
The pay demands of talented junior staff were kept in line because they also did not have a lot of mobility. Remember, inviting someone into the partnership is a very risky decision. Therefore the firm's owners will be most comfortable with someone they have observed closely over time, in a variety of business and personal settings. In the vast majority of cases, anyone who switched firms mid-career would be less likely to make partner than home-grown talent (the exceptions would be firms poaching staff in areas where they were weak, or individuals trading down from a more prestigious to a less prestigious firm to get more latitude or a bigger payout). That meant that the junior staff knew they had to build what amounted to sweat equity in order to get a piece of the firm.
The implication: if banks were only still partnerships, traders would be quite happy to earn 4.5% of P&L. Then again, they might not be allowing their traders to place trades making 150m. Discuss.
Strong European trading brings optimism for 2011. (Financial News)
David Cameron continues campaign to curb bankers' bonuses. (Evening Standard)
UK Treasury wants banks to commit to lending 200bn this year. (Sky)
If banks can afford to pay billions in bonuses, they can clearly afford to be taxed a great deal more. (Guardian)
US banks set to pay 2.2bn City bonuses. (Telegraph)
Top City lawyers claimed that attempts to force the banks to voluntarily disclose the salaries of their highest paid staff could leave them in breach of confidentiality and data protection rules. (Financial Times)
RAB Capital has cut Hong Kong staff for the 2nd time since October, to concentrate on the UK. (Bloomberg)
While traditionally, a steep curve implies substantial bank profits, this time it is really is different. (ZeroHedge)
Derivatives platform bypasses banks. (Financial Times)
Lloyd Blankfein is moving his favourite hairdresser in-house. (Dealbook)
Rush hour on the Tokyo underground. (Independent)
Researchers have found that handsome men and beautiful women tend to be cleverer, with IQs averaging up to nearly 14 points above the norm. (SundayTimes)
When a country trades like its banking system. (Alphaville)
It is absolute horsesh*t to claim that investment banks somehow bully or cajole corporate clients into doing deals or raising capital that they didn't otherwise want to do. (TheEpicureanDealmaker)
