Morning Coffee: Goldman Sachs raises the bonus bar. Why high paying Hong Kong jobs are risky
It will be harder to achieve a full Goldman Sachs bonus in future.- At least, this is the case if you happen to be Goldman chief executive Lloyd Blankfein. Reuters reports that Blankfein's $6m stock bonus has been made less attainable by a new stipulation that Goldman has to achieve a 12% return on equity over a three to five year span (the duration is at the board's discretion) if his stock is to vest in full.
The 12% ROE target for Blankfein comes after shareholders complained that his previous 10% target was too low. This may be so: Goldman has easily achieved a 10% ROE in the past two years (11% for 2013, 10.7% for 2012), but has yet to hit 12%. Before the financial crisis, Goldman Sachs regularly achieved a return on equity of 20% or more, but in 2011 ROE at the firm was just 3.7%. Blankfein has brought the firm back from 2011's nadir, but that's obviously not enough.
Unfortunately, Blankfein can't simply hike ROE and sit back. If he wants the full $6m, he will also need to increase Goldman's book value by an average of 7% over the time period in question. If he achieves a 15% ROE and a 12% average increase in Goldman's book value, Blankfein's stock bonus will increase by 50%. A focus on increasing ROE usually dictates a push into cash equities and a retreat from more capital intensive fixed income currencies and commodities trading (FICC). This sounds like bad news for Goldman's fixed income business, except that last week Blankfein and Goldman COO Gary Cohn said the firm will remain wholly committed to FICC.
Separately, the Telegraph has a piece suggesting those high paying jobs in Hong Kong might not be all that. A mid-ranking 'investment banker' in Hong Kong can earn £316k a year, tax free, according to the Telegraph. This compares to a heavily taxed £286k a year in London. However, the paper argues that there are signs that Hong Kong will be at the centre of a new China-led financial crisis. It says the island is in the grip of a property boom and Hong Kong banks' exposure to China has ballooned from 10% of their external claims before the financial crisis to 49% now. If China's property bubble also bursts, Hong Kong-based banks could find themselves in trouble.
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Up to 25% of Barclays investors are planning to protest against pay in the investment bank. (Sunday Times)
You can earn more as a fund manager in London than as a fund manager in Zurich. (Businessweek)
Moelis & Co., M&A boutique founded just before the credit crunch in 2007, thinks it's worth $1.6bn. (WSJ)
If all goes to plan, Ken Moelis will himself have around $500m. (Bloomberg)
It was a bad first quarter for macro hedge funds. (Bloomberg)
The FCA is employing a change management lead to, ‘minimize employee resistance to change’. (Telegraph)
Ewen Stevenson, Credit Suisse dealmaker and FIG banker, is chucking that in and becoming CFO of RBS, (Financial Times)
Owain Self, the former head of direct execution services at UBS, is off to join Millennium Management, a hedge fund. (Financial News)
Psychopaths have a great advantage. They can understand what you’re thinking, it’s just that they don’t care, so they can use you against you. (Telegraph)
Once you’re older than 44, you have very little chance of setting up a billion dollar tech business. (HBR)
I refuse to be busy. (New York Times)
You're not rich until you're a rentier. (Atlantic)
Beware the hedonic treadmill. (NYMag)
Long term, you’ll make more in banking if you didn’t go to a target school. The vulnerability of Credit Suisse