It’s coming up to the tenth anniversary of the Lehman Brothers bankruptcy, and so we can expect a lot of retrospectives looking back on that day, and on the lessons learned. For example, John Authers in the FT recalls the day that he saw queues of Wall Streeters trying to shift their money out of Chase and Citigroup, but didn’t get a photographer to get pictures, because he was worried that if the FT published this story it might cause a general bank run. This is illuminating, but when most people look back on Lehman and the crisis, their main questions is what happened to bankers’ pay?
In a thrown-away remark in an interview on the “crisis of capitalism”, U.K. Archbishop Justin Welby offers an helpful insight. Welby mentions that he was recently in a meeting in which a group of senior bankers reflected upon their diminished compensation. One said that “back in 2007 many of us were on eight-figure salaries — ie over £10m […] If you look around this room, there’s not one of us who’s getting paid more than £5m a year”.
It’s something of a broad brush statement, but the Archbishop is actually quite close to being right. At the top end, total compensation has more or less halved. And yet from the perspective of anyone looking in from outside - it's still abnormally high.
If we look, for example, at the Lehman Brothers 2007 compensation report, the lowest paid employee in the top fifty was taking $8.2m home, with $16.75m marking the start of the top ten. Scroll forward to a more recent top pay table (from Megan Messina’s equal pay lawsuit against BoAML in 2016), and there are “top traders” including the head of loan trading, getting barely into seven figures, let alone eight.
A pay cheque of $5m, and certainly £5m, would certainly put you into the ranks of the top hitters these days. The regulatory disclosures made by London offices of the top banks confirm this; the equivalent of €1m is the going rate for top risk takers, and €5m is very much a big-hitter level – only 14 people at JP Morgan earned this much or more, and only 32 at Goldman Sachs. The number of employees still in “eight figures” could be counted on one’s fingers.
What’s changed? There’s a big clue in the Lehman disclosure, where two of the top ten earners were not MDs, but only of Senior Vice-President rank. These super high-paid VPs worked on proprietary trading desks, a function which simply doesn’t exist in big banks any more, but which used to not only drive the overall profits and bonus pool, but also to a substantial degree drive the norms for pay across the bank. It’s also interesting, though, how even in 2007, there were plenty of the top earners in “Administration” roles at Lehman; the move toward greater recognition for compliance, technology, COO and admin roles had already begun, and has only accelerated since.
Of course, the top end of the distribution doesn’t tell the whole story and nor do the headline total comp figures. At the lower end of the pay scale, the basic salaries awarded to junior ranks have grown substantially, at least partly because they are no longer supplemented by mega bonuses in the good years. Not only have “good years” for the investment banking industry been in short supply since the crisis, but the regulation of compensation in Europe has affected norms across the industry, with a multiple of 100% of salary now being seen as an aspirational goal for top performers at most levels, rather than the baseline expectation for a competent year’s work.
There have been other changes in the working environment too; more and more of us do at least some of our work from home, logging on to the office system remotely. But this can mean that “work” data and “personal” information get intermingled, in a way which makes it difficult to decide what information is whose property, and what rights the company has to snoop. A court case in New York, where a former managing director at Brevet Capital LLC is suing Brevet under the federal anti-hacking laws, is bringing a lot of these issues out into the open.
One fact which seems relevant in the Brevet case is that the company bought the laptop which Paul Iacovici also used as his family computer. When they suspected him of downloading confidential documents that they thought he might use to start a competing business, they decided to first sack him, and then use remote access to go through his hard drive. They are pleading that they had bought the computer, and their IT support team had been given the passwords, so nothing illegal was done.
Experts involved in the case seem to be suggesting that once your personal information touches an employer’s company network, you have to assume that it’s accessible to the employer. Even something as innocent as connecting your phone to a work computer to update iTunes could create enough of a digital trail to allow your boss to access your text messages. This is true in the USA and under standard employment contracts there, that is; in Europe, employees probably have more solid privacy rights, which might partly compensate for the lower wages.
The extraordinary corporate governance of JD.com, where not only is the board prevented from meeting in the absence of Liu Qiangdong, but the rule which prevents this explicitly makes it clear that this is not waived even if the absence is as a result of being compulsorily detained (as Mr Liu currently is) (WSJ)
Neil Horlock, a long-serving technologist and exchange connectivity architect, is leaving Credit Suisse after 20 years (TheTrade News)
A former GS banker in Australia decided on a career break, spent some time driving a hearse, and is now launching a funeral services startup (Australian Financial Review)
Generation Z have some new ideas about retirement savings – 63% of “affluent” people between the ages of 18 and 22 say that their financial security is dependent on inheriting money. Nothing unusual there, except that 17% of them think that this inheritance will come from “friends” rather than their parents or grandparents. (Bloomberg)
Tidjane Thiam rules out a move into politics, so the citizens of Cote d’Ivoire will not, for the time being, see their country shut down some of its loss-making regions in order to focus on Asia (Financial TImes)
The “evolutionary algorithms” hedge fund, Sentient, is shutting down after two years. With generally poor performance across AI funds, some researchers are suggesting that “winter is coming” after the rush of excitement over deep learning. (Bloomberg Tech)
The ECB is continuing to increase pressure on banks which are moving operations to Euroland post-Brexit, now requiring details of staff and operational moves, in order to be certain that there will be no “brass-plate” moves (The TImes)
Andrei Tyurin, the hacker behind the JP Morgan data breach and the “biggest financial cybercrime of all time” is now in custody in the USA after extradition from Georgia (Forbes)
Showing that the securitisation market is more robust that it used to be – the departure of Palm Lane Credit Opportunities, the JP Morgan hedge fund which used to provide warehouse lines to CLO managers, has hardly affected issuance in August, (Bloomberg)
A former star broker from UBS’ Boston wealth management arm is suing the company for gender bias in the distribution of the best client accounts. (Bloomberg)
For a change, a financial crime story in which Deutsche Bank are the good guys; it appears that the Danske Bank Estonia money laundering scandal started to fall apart when Deutsche withdrew correspondent banking services after becoming concerned about the branch. (Bloomberg)
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