Headhunters say European banks are in danger of being hollowed-out by their inability to attract good people. Both in New York and in London, European banks are being given a wide berth.
"If you approach a European working in London and offer them a European banking opportunity, they will always say they want to work for a U.S. bank," says the head of one search firm, speaking on condition of anonymity as his clients are mostly European banks. "It's even worse in the U.S," he adds. "Bankers on Wall Street seem to assume that the European banks are run by socialists - they'd rather work anywhere than there. Their first choice is always a U.S. bank, their second choice is a Canadian bank, their third choice is anything non-European. Getting someone to join a European bank is like pushing water uphill."
Other headhunters agree. "People know that they've got a far better chance of getting paid at a U.S. institution," says Ebrahim Zaheer at search firm The Kennedy Group. "If an individual has a few job offers, the European one isn't going to be at the top of the pile." Jeanne Branthover, head of Boyden's global financial services business in New York, says unpopular European banks are having to stop and reevaluate the sorts of people they can hire: "It's truly becoming an issue for potential and existing European clients."
European banks' unpopularity comes at a time when many are seeking to increase their presence in the North American market. The U.S. is seen as a growth market for investment banks. U.S. investment banking revenues were at their highest level ever last year according to data provider Dealogic and European and international banks want to capture some of the expanding U.S. revenues. Hence Nomura International is hiring 20 investment bankers on Wall Street, Deutsche Bank and SocGen are building their U.S. fixed income businesses, and UBS wants to grow its U.S. equities business and to hire U.S. M&A bankers. Only RBS is going against the grain and retreating from its formerly successful U.S. capital markets business - but RBS is governed by something other than market forces.
It goes without saying that European banks are being disadvantaged by strict European bonus regulations introduced in January 2014. These state that European banks (and Europe-registered banks like Nomura International) cannot pay bonuses greater than 200% of salaries to their staff anywhere in the world. The rules apply to all 'material risk takers' and to anyone earning more than €500k - unless banks apply for exemption on an individual-by-individual basis. U.S. banks in the City of London are equally impacted by the rules, but have been granted more leniency than European rivals when it comes to increasing the bonus cap to the 200% maximum from the 100% default.
The mandatory bonus cap is bad enough, but it doesn't help that some European banks have voluntarily adopted punitive bonus deferrals beyond those mandated by the state. Deutsche Bank, for example, implemented five year deferrals for its managing directors in 2012. Senior staff at Deutsche are unable to access any of their bonus until year five as a result. Although other banks haven't embraced a similar policy, Deutsche Bank co-CEO Anshu Jain said last month that he has no intention of reducing Deutsche's deferrals back down to three years. Similarly, Barclays pays no cash upfront to its managing directors.
Branthover says European banks on Wall Street are being forced to offer special inducements to persuade the best staff to join as a result. European houses can't offer higher bonuses without increasing fixed pay, but they can offer sign-ons, which are banned in Europe but not in New York. "We're advising European clients to offer a one-time hit to persuade people to come on-board," says Branthover. "They can be anything from $25k to $100k and usually come with restrictions saying that they have to be paid back if someone leaves within 24 months, for example."
Zaheer says European banks are being forced to offer better titles and bigger jobs if they want to persuade people across. "No one's going to a European bank for the money now, so they're having to offer other kinds of incentives. It's becoming all about the role on offer, the level of responsibility and the platform." There's a danger of title inflation at European houses as a result.
Branthover says European banks are still at a serious disadvantage, however. "U.S. are getting a leg-up when it comes to hiring the best talent, just because they're able to offer much better compensation."
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