Morning Coffee: Nightmare for the JPMorgan bankers who spent all their bonuses. New sting at Deutsche Bank
If ever there were a parable about saving money and not splurging your bonus on the first car or watch that crosses your path, the sorry tale of JPMorgan's employee benefit trust (EBT) would seem to be it. Well over a decade since bonuses were allocated, some JPMorgan recipients are being asked to pay money back - to the taxman.
Back in the late 1990s and early 2000s, JPMorgan's employee benefit trust was a major perk of working for the bank in London. After paying their bonuses into the offshore trust, JPMorgan's bankers received loans in return. These loans were subject to neither income tax nor national insurance, which should have accounted for around 50% of the total. It wasn't very ethical, but these were the go-go years and ethics were not front of mind.
"Historically, a lot of the MDs at JPMorgan were paid their bonuses through the employee benefit trust," one headhunter told us in 2012. "The idea was that they could borrow against the trust, tax free, and that if they went to live offshore they could access all their past bonuses without paying tax on them." Thanks to this arrangement, senior people rarely left JPM: no one wanted a huge tax-induced pay cut to work elsewhere.
Estimates of the amount of money paid into the JPM trust vary, with some saying £2bn and some saying as much as £9bn. The money was transferred from at least 1998, with the bulk paid in after 2005/6.
As with all good morality tales, the perpetrators in JPMorgan's story received karmic retribution, in this case at the hands of the British taxman, whose revenge has been eked out over years.
The demands for restitution were first made around 2012, when it was calculated that individual bankers each owed around £400k ($527k) to the British state, although JPM negotiated concessions to halve this. Now, it seems that the taxman is back for another bite. The Sunday Times reported at the weekend that some of JPM's ex-bankers are being asked to pay tax, national insurance contributions and (presumably fines) totalling 60% of bonuses that were paid into the trust. JPM bankers who were happily retired suddenly face financial wipeout.
“These were bonuses that were paid nearly 20 years ago and some people will just not be able to pay,” one former banker told the paper. “Some people were earning huge amounts, but they were also spending huge amounts. Some are now likely to declare bankruptcy.” Save your money - particularly if it has come to you through a nefarious-sounding scheme focused only on personal gain.
Separately, Deutsche bankers have paid tax on their bonuses, but they can't seem to get at them. The Financial Times says that when Deutsche's senior staff attempted to sell their stock from historic bonuses as it vested last week, they found that they couldn't. While the merger with Commerzbank is being discussed, DB stock has been added to an 'internal conflict list' and employees paid in stock can't sell it. This will continue until the merger discussions have been resolved. At the very least, it's a cheap way for DB to retain its staff.
Meanwhile:
Head of the investment bank, Garth Ritchie, is the highest earning member of Deutsche Bank's management board. Ritchie received total compensation of €8.6m last year (including a €250k top-up for managing Brexit). CEO of all of Deutsche Bank, Christian Sewing, only got €7m. Most of the bonuses went to staff in the U.S. (Bloomberg)
Ritchie's “functional allowance” was a way to make his total pay package more competitive, given that the heads of other investment banks get much more and Ritchie has waived his bonus for three years. (Financial Times)
Deutsche awarded a €150k monthly functional allowance to Stuart Lewis, 53, chief risk officer, for taking on “additional responsibility to further improve the relationship with US regulators”. (The Times)
Christian Sewing's pay increased 140% last year. (Financial Times)
Citi fired eight Hong Kong equity traders and suspended three more for prop trading against clients after telling clients they'd only been acting as agents. (Financial Times)
The richest 0.15% of the UK population pay 20% of all income and capital gains tax. (The Times)
Banks don't want to move to Amsterdam after Brexit because of rules that limit bonuses for bankers to 20% of their fixed pay. (Financial Times)
Get yourself a Tesla key ring and some Allbirds trainers in the Silicon Valley starter look kit. (Business Insider)
Weekends when you've retired from GS and have a fluffy white dog. (NY Times)
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