Morning Coffee: Angry ex-trader explains why bankers earn so much. Bitcoin bonanza or bubble?

The issue of pay levels in the financial services industry remains divisive.

Sergiot Ermotti, ex-trader turned chief executive of UBS, butted heads with Sir Paul Tucker, the former deputy governor of the Bank of England, after the latter said the former’s pay is too high. The boss of the Swiss bank suggested such criticism was fueled by envy.

Tucker retorted by arguing that UBS bankers took the big paydays when times were good, but taxpayers had borne the losses when Switzerland’s biggest bank had to be bailed out in the crisis.

Ermotti, a former Citi and Merrill equities trader, countered by saying: “I think this discussion is made by people who are maybe frustrated that they do not make that kind of level of money.”

“If bankers were paid less, that would [help you to] cover your cost of capital. Why has pay not come down?” argued Tucker, who left the BoE in 2013 and is now chairman of a U.S.-headquartered regulatory advocacy group.

Ermotti, who has run UBS since 2011 and had his 2016 pay cut slightly to CHF13.7m ($13.93m), admitted that he is “very well paid,” but said that banks needed to pay enough to attract the best talent.

The UBS CEO then identified the nub of the matter: “If you basically say banks should pay much less, and you allow other parts of the economy like big tech or shadow banking to pay whatever…it’s a competitive [market]…people made a choice to do good for society while also getting their desired level of compensation,” he said. “They are going to do something else.” – In other words, banks haveto pay more than competitors because of their “moral taint:” people prefer to work for big technology firms where they feel like they’re “doing good” and banks pay more to compete with that.

After Tucker pointed out that UBS had been bailed out by the Swiss taxpayer in the financial crisis, Andreas Treichl, CEO of Austria’s Erste Bank, tried to lighten the mood by joking that he was “paid less than the Goldman Sachs doorman.”

Separately, as bitcoin has grabbed headlines with dizzying volatility and fear of a bubble, a senior UBS economist says there’s a fatal flaw in cryptocurrencies, and other bankers have piled on.

The chief investment officer of UBS says it’s too risky to be added to the firm’s portfolios.

Goldman Sachs CEO Lloyd Blankfein said it’s too early for his bank to need a bitcoin strategy and that he doesn’t consider the digital currency to be a store of value, citing the latest spell of wild price volatility.

Others have called it “the very definition of a bubble” and even “a fraud.”

However, even the biggest skeptics concede that blockchain, the distributed-ledger technology underlying bitcoin, could be transformative. By reducing the need for central intermediaries, it holds out the promise of processing transactions of various kinds more efficiently than today. Many banks and exchanges are exploring such uses of blockchain, according to Bloomberg.

Meanwhile:

U.S. merger-and-acquisition activity is on pace to clear $1 trillion for the fourth year in a row, and Robert W. Baird sees robust activity continuing through 2018 as private-equity-backed companies grow in number and outbound Chinese investment remains strong. (Business Insider)

Goldman Sachs is poised to sign a lease for a new office in Milan that will significantly boost its presence in Italy as Britain prepares to leave the E.U. (Reuters)

Goldman is transferring up to 40 senior investment bankers from London to continental European cities as part of a global strategy – already underway in the U.S. – to bring its financiers and dealmakers closer to clients in lower-cost cities. (Financial News)

Goldman said the party isn’t over yet, but the lights will go off sooner or later. (Bloomberg)

Credit Suisse is the latest to promise to return half of earnings to investors, a heart-warming Christmas promise that it may not be able to keep if it wants to pay out decent 2017 bonuses. (Bloomberg)

Everyone on Wall Street and beyond is talking about the competing proposals in Congress to change the U.S. tax system – and millennials are among the groups that are extremely concerned. (New York Times)

On the other hand, many investors are placing bets that the Republican tax plan will benefit regional banks. (Bloomberg)

Actually, bulge-bracket bank stocks are getting a boost too now that it looks like a version of the Republican tax bill will eventually pass. (Business Insider)

Repurchase agreements (repos), which banks use to borrow large amounts of short-term cash safely by selling a security and pledging to buy it back at a slightly different price in the near future, are making a post-crisis comeback. (WSJ)

Barclays announces an eclectic board for its new ringfenced bank. (FT)

Trends-following hedge funds are eyeing juicy returns by shunning mainstream markets to trade in esoteric, less-liquid areas such as electricity or cheese prices and natural gas or milk contracts. (FT)

Big Four accounting firm PwC now accepts payment in bitcoin for its advisory services. (WSJ)

Up to 800m global workers will lose their jobs by 2030 and be replaced by robotic automation, according to McKinsey. (BBC)

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