London bank's £860k cash bonuses may be sadly curtailed

Jefferies has been busy hiring in London this year. Only a few weeks ago, it brought in  Axel Bleymann, a former RBS trader, to trade sterling denominated financial bonds. Before that, it hired a host of equity researchers and M&A bankers. 

There's a reason bankers want to work for Jefferies and it's not just to do with Jefferies' proclivity for expansion: in London ,the U.S. bank pays well, in cash. 

The most recent 2015 Pillar 3 disclosure for Jefferies International shows average compensation for each of the 67 code staff at Jefferies' London office allocated as per the chart below. The average salary was £253k, the average cash bonus, £866k.

How can this be? Under the European Union's 'bonus cap', London banks are supposed to pay bonuses equivalent to no more than twice salaries and at least 40% must be deferred over three years.

As you'll know if you read eFinancialCareers a lot, Jefferies has so far been able to sidestep the EU's bonus rules because it's small. The UK regulator has chosen to only apply the EU's edicts to firms it ranks as Tier 1 or Tier 2, with more than £15bn of relevant total assets. Jefferies has less than that - and so (when we last looked) do the likes of Brevan Howard, Vanguard, and Blackrock. 

Now though, the European Union wants to change all this. Last week, the European Commission issued a new set of guidelines proposing that the bonus cap be applied to all regulated staff at European financial services firms - irrespective of size. The process for incorporating this into legislation is expected to begin next year and to end in 2018. Thereafter, the big cash bonuses at Jefferies International could become a thing of the past.

Of course, UK banks may in theory be free to pay how they like once the country leaves the EU. However, if UK-based finance firms want to continue accessing continental markets, they'll likely have to apply the EU's bonus rules as given.

Contact: sbutcher@efinancialcareers.com