Deferred bonuses giveth, and deferred bonuses taketh away
Five years ago, in the aftermath of the economic crisis, Wall Street banks joined hands to better align employee compensation with the performance of the firms over the long haul. The decision to pay bonuses in deferred stock rather than cash, a move than normally makes bankers’ skin crawl, is working out just fine for Wall Streeters, despite the fact that banking revenue has remained sluggish.
During the first three quarters of 2013, combined net revenue at the 24 firms in the KBW Bank Index rose 2.6% year-over-year, according to Bloomberg. However, due to the market boom and the generally-held idea that bank stocks were cheap, shares prices of the two dozen banks rose a whopping 35%. Securities firms and asset managers performed even better.
So, somewhat ironically, bankers who pouted about receiving bonuses in deferred stock years ago are in line to cash in a nice profit, even without their firms seeing large revenue increases. As an example, Goldman Sachs CEO Lloyd Blankfein’s $21 million pay package for 2012 was made up of 63% in deferred stock. With the near 40% jump in Goldman shares in 2013, Blankfein’s expected award has grown by $3.4 million, according to Bloomberg. Same story, different chapter for J.P. Morgan’s Jamie Dimon.
Unfortunately for Wall Street bankers, the bloom may fall off the rose in 2014. Many believe bank shares will plateau a bit this year as the Fed slows its QE marathon and prices stabilize. Analysts expect a just a 4% jump in the shares of the nation’s six biggest banks in 2014, meaning “deferred” may soon become a four-letter word yet again.
Here are all the final numbers you need to know about investment banking in 2013, from revenue totals, to jobs-created, to applications-denied.
Big banks are getting smaller, right? Nope. The five largest U.S. banks now control 44% of the industry’s total assets. Their dominance peaked in the third quarter of 2012, a full four year after the economic crisis.
Plenty of real-life anecdotes surrounding infamous Long Island boiler room Stratton-Oakmont have surfaced since The Wolf of Wall Street hit theaters over the holidays. This one may be the best. One broker happened to cold-call an SEC staffer, who was quick to warn him of his occupation and duty to report the call. That didn’t stop the broker – he was just getting started on his sales pitch.
Commodities traders are likely to have another soft year in 2014. Investors believe a fourth consecutive losing year for the Dow Jones-UBS Commodity Index may be on the horizon.
Redemptions have outweighed investments in funds-of-funds for nine consecutive quarters. Multi-managed vehicles now account for just 32% of total hedge fund industry assets. Strangely, traditional hedge funds, which continue to see an inflow of assets, aren’t really outperforming FoFs.
Bill Gross’ flagship bond fund – the world’s largest – had its worst year in nearly two decades during 2013. Still, the Pimco Total Return Fund outperformed the general U.S. bond market, though barely.
Gary Gensler, the chairman of the Commodity Futures Trading Commission, officially retired on Friday. Wall Street exhaled. President Obama has appointed Timothy Massad, a relatively unknown Treasury Department official, as his successor.
Buzz Around the Office
Various Wal-Mart stores in China have been forced to recall “Five Spice” donkey meat after tests showed that the product contained fox meat, among DNA of other animals.
Quote of the Day: “Balance suggests a perfect equilibrium. There is no such thing. That is a false expectation…. There are going to be priorities and dimensions of your life, how you integrate them is how you find true happiness.” – Denise Morrison