JPMorgan: All banks should pay like BNP Paribas

Analysts at JPMorgan think BNP Paribas has one of the best pay models among investment banks.

BNP Paribas is the 'best in class' for 'compensation management of Tier II IBs', JPMorgan's analysts said in a report today. They praised the French bank for its low bonuses as a percentage of compensation (84% of pay at BNP Paribas's corporate and investment bank (CIB) was fixed costs - or salaries - last year). Bonuses at BNP Paribas have been reduced by 25% since 2010, and all charges for future deferred bonuses have already been booked. Nonetheless, the compensation ratio at the CIB was a mere 40.5% for 2012 - one of the lowest in the industry.

BNP Paribas wasn't immediately available for comment.

If BNP Paribas is a paragon of compensation virtue, the same cannot be said for Credit Suisse, where more redundancies seem likely. Credit Suisse still has a substantial amount of deferred compensation that it has yet to recognise, said JPMorgan. Fixed compensation at the Swiss bank accounts for a mere 45% of the total and last year, deferred bonuses accounted for 33% of Credit Suisse's investment banking compensation spending. Credit Suisse needs to make more redundancies, JPMorgan added: it employs 19,800 people in the investment bank, almost as many as Goldman Sachs, yet generates only two-thirds of Goldman's investment banking revenues.

The implication that other banks should emulate the pay policies of BNP Paribas is worrying: BNP Paribas is not known for paying its investment bankers especially well. According to pay figures from Emolument, it ranks 13th out of 14 banks for pay for directors in the front office and seventh out of eight banks for pay for managing directors. These figures have not been verified by the bank and are based on a small sample. However, BNP regularly boasts to investors about its low investment banking cost base and has been known to implement harsh bonus clawbacks in the past.

By 2015, JPMorgan predicts that BNP Paribas will be the worst paying European investment bank on an average per head basis. UBS will be the best.