Morning Coffee: How to earn more than Goldman Sachs employees without going to a top university. The best places to work if you like to smoke dope

It’s always been one of the most reliable facts in the financial sector – if you want to earn the most, you either start a hedge fund, or get a job at a bulge bracket sell side firm. But this is no longer necessarily true. The current median salary at Goldman Sachs is $136,515, while Morgan Stanley is $142,604. The European banks are somewhat worse paying, while Citi, JPM and Bank of America have the average brought down by large numbers of retail counter staff. In any case, though, even the top of the banking tree is significantly lower than the $183,956 median salary at Host Hotels and Resorts, the real estate investment trust spun out 20 years ago from Marriott Hotels. And this isn’t a one-off; other REITs like HCP Inc also have median salaries significantly better than Wall Street.

It's not totally incomprehensible; in many ways the REITs are not wholly unlike private equity partnerships in their business model. They have a lot of debt in the capital structure, a lot of revenue-producing assets and only a small staff to be dipping into the compensation pool (Host Hotels & Resorts only employs 180 people). But the real estate sector has historically been one of the poor relations of financial services and it’s only with a boom in asset values and historically low borrowing costs that it’s been able to generate big enough returns to pay in the big leagues.

This historical status is also reflected in a significantly more democratic profile of the employees than the typical white-shoe investment banker. Looking through the LinkedIn profiles of the big REIT employers, you see a lot of good educational backgrounds, but not so many Harvards and Stanfords. Typically, REIT people seem to have a background in real estate and tax law, or MBAs followed by time in the finance departments of hotel chains or office real estate companies.

In a world in which the big investment banks’ recruiting universe has shrunk to a small number of universities (with fairly strict requirements for grades and extracurricular activities even there), it’s somehow comforting to know that there is a path to equally well-paying jobs on the buy side for people who work their way up as star performers in a real industry, with a less glamorous background. Given their lean staffing structure and practical orientation, it seems unlikely that REITs are going to start raiding the Ivy League recruitment round or the analyst programmes of the big banks any time soon. So this might continue to be a strong career choice for bright financial professionals who happened not to have everything sewn up at the age of seventeen. The only disadvantage is that REITs do have this tendency to go bust during economic downturns …

Elsewhere, New York City Council passed a bill last week that would (in a year’s time, if it gets mayoral approval) forbid employers from forcing prospective employees to take drug tests for marijuana use – obviously, this would include the head offices of all the major Wall Street banks. Currently, Goldman Sachs tests applicants for other drugs but not marijuana, Morgan Stanley doesn’t test applicants for drug use at all and Citigroup is “reevaluating its policy”.

The policies are up for review not least because cannabis stock IPOs are one of the few bright areas in an otherwise pretty barren capital market, and with 33 US states having passed recreational or medical marijuana laws, the potential demand for financial services from a growing industry is substantial. So far, the big investment banks have tended to steer clear of the industry on grounds of reputational risk and potential anti-money laundering liability, but it’s unlikely that such a big pot of cash is going to be ignored and allowed to flow to Canadian smallcap brokers forever. With mainstream consumer goods and tobacco companies making investments in the space and looking to their normal bankers for advice and financing, the boundaries are already being broken down. And if the banks are making money out of pot, can they really hold the line on employees using the product? The future is probably a similar policy to that with respect to alcohol use; as long as you’re not visibly impaired on the trading desk, and as long as you can keep your behaviour under control at work events, what you do in your spare time will increasingly be regarded as your own business.

Meanwhile

After some nasty losses on soured hedge fund trades over the last year, Citigroup has begun to reassess the profitability of its prime brokerage franchise. There’s little prospect of putting through price rises to clients, so they are suggesting that counterparties in FX forwards ought to pay a significant fee to compensate Citi for its “value add”. (FT)

Profile of Iqbal Khan, the only division head at Credit Suisse to be hitting his financial targets and now being talked about as a potential future CEO of Julius Baer if he doesn’t succeed TIdjane Thiam. (Finews)

They’ve already had his private jet, but Nigerian oil trader Igho Sanomi still owes CS about $5m as guarantor of a credit line to one of his trading companies, and so the Swiss bank is trying to repossess three London houses that they’ve identified as belonging to him. Sanomi isn’t making any comment and didn’t show up in court to challenge the application. (Bloomberg)

A megamerger isn’t a megamerger without a white knight showing up to complicate things; now ING is considering a bid for Commerzbank, which would also give them the opportunity to move the HQ to Frankfurt and escape Dutch bonus caps. (FT)

Lots of hedge funds are feeling the pinch but not Marshall Wace; AuM has doubled in the last four years. Not only has this been a great investment for KKR (who own 35% of the company), they have even been given tips on how to redesign their offices to look more hedge-fund trendy. (Bloomberg)

The mega-trade of 2018 for Bank of America was a derivatives deal for a Chinese billionaire to acquire a stake in Daimler. It was so big that its dropping out of the numbers this year made the whole equities division results look terrible. (Business Insider)

Hogan Lovells has hired a top in-house lawyer from UBS. Arwen Hadley, the group head of whistleblowing and investigations will join the financial sector litigation practice. (Bloomberg BigLaw)

And the high-end ski resort of Crans-Montana in Switzerland has a controversial owner of its ski-lifts who’s being sued by a New York hedge fund over the way he got control of the company. (Bloomberg)

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