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Morning Coffee: When $64m in deferred bonuses makes you play nicely. Teaching traders to be more like bankers

Yesterday was the day for defence arguments in the Barclays trial over the bank's bailout package from Qatar during the financial crisis. The lawyer representing Roger Jenkins (the onetime head of Barclays' structured capital markets/tax mitigation business and ex-highest earning man in the entire FTSE 100) has made the very key point that in order to believe that Jenkins intentionally engaged in a fraudulent practice with respect to the Qatar investment, you would first have to believe that he was prepared to take the risk of being caught, fired, deemed to be a bad leaver and thereby lose all of his deferred compensation.  Which would be a crazy thing to do – who would take the risk of losing £50m ($64m) of bonus entitlement?

That’s meant to be a rhetorical question, by the way, not one inviting the answer “well, Andrea Orcel”.  But it ought to bear some weight in the court.  If the Serious Fraud Office argues too hard against it, after all, they’re arguing against the whole basis on which bonuses are regulated in Britain.

Roger Jenkins, if he’s like any other banker, never asked for his money to be locked up in a long term scheme.  If you’d asked him, he would surely rather have had the cash.  Back in the good days, he never appeared to be short of ideas about how to spend it.  But it was thought to be “best practice” to “align risk taking incentives” by paying the majority of his £39.5m 2007 bonus out over a period of years, conditional on Barclays remaining a viable business and Mr Jenkins remaining in employment.

The idea was also that if he had a big chunk of his personal wealth in the form of a promise from Barclays, Jenkins would have a strong incentive to make sure that Barclays Bank survived and didn’t need to be bailed out by the British taxpayer.  And Mr Jenkins lawyers are arguing that the system worked – because moving heaven and earth to try to raise capital in conditions where all the other UK banks were failing is exactly what he did!

Of course the prosecutors are going to argue that there was also the incentive to get the deal over the line in any way possible, including the payment of illegal commissions, because the deferred bonus would be worthless without it, and the Barclays team might have hoped that nobody would look too closely at the details while there was a global crisis going on. 

We’ll see who the jury believes in a few weeks (or at least maybe we will; maybe the trial will collapse in mysterious circumstances like the last one did).  But the interesting thing is that the court has also heard another theory of his motivation.

According to some alternative lines pursued by Mr Jenkins’ lawyers, the other thing that made him keen to arrange the controversial “advisory service agreements” was good honest competitive spite, and the desire to knock out Credit Suisse from their position as main relationship bankers to the Qatari royal family.  The Qataris were described by CEO John Varley as “the new cocks of the walk” and Roger Jenkins had been pursuing a relationship with them for years.  It is perhaps a bit much to expect a jury to agree that the Barclays team were mainly motivated by hunger for league table credit, but if they knew about investment bankers, they might at least consider it.

Separately, it seems that, according to “a person familiar with the matter”, the new strategy for Goldman Sachs’ trading businesses is to get traders to act more like bankers.  It’s not completely clear what this might mean; the examples of banker-like behaviour that are given are things like “having targets for the number of client meetings organised” and “paying lots of attention to broker votes”, neither of which are exactly unknown concepts in sales and trading departments. 

There seems to be an element of cross-selling involved; with more hedge fund and institutional client business going all-electronic, salespeople are being encouraged to make relationships with corporate treasurers and similar potential clients for rates and credit products.  But in terms of specific behaviours, it looks to an outsider as if the “being more like a banker” idea is more a way of appealing to the chief executive rather than a new way of doing business.  Trading operations are always stuck between the two poles of “client-focus” versus “execution” and this may really just be a way of suggesting to the traders that they can be a bit more long-term greedy and spend less time sweating the daily P&L.

Meanwhile …

Dane Holmes, former head of Human Capital Management at Goldman Sachs and architect of the current “not elitist, not cutthroat” employer branding campaign, is heading to Eskalera, a San Francisco startup aiming to use data science to help companies attract and retain a diverse workforce.  His new boss is Marty Chavez’ brother (WSJ)

Considerably more detail and confirmation on forthcoming job losses at HSBC – there will be cuts in French retail, but Global Equities appears to be targeted, in a Deutsche-style pull back from non-Asian markets. (Bloomberg)

An interview with Fabrizio Capelli, the aggressively expansionist Credit Suisse veteran who isn’t Iqbal Khan.  He’s the head of wealth management at Deutsche Bank, he’s got billionaire market share in his sights and he’s prepared to pay up to recruit the right bankers (Finews)

The fallout continues from Ken Fisher’s unfortunate comments at an investment conference last week; pension fund clients have pulled nearly $1bn of assets under management from him.  If they were paying anywhere near 2/20, that’s an extremely expensive mistake. (Bloomberg)

Tales of stupidly competitive natures as investment banking firms organise office “Great British Bake-Off” competitions.  Rumours of cheating are rife and “there is no space for sore losers at Goldman”, as a judge in the operations division bake-off seems to have taken quite a bit of pleasure in telling his colleagues. (WSJ)

And Barclays researchers (working with IBM) have published a possible algorithm which might be used in the future by quantum computers to process securities transactions.  According to Heisenberg’s principle, you will be able to know what you bought, or what price you paid, but never both at the same time. (Computer Weekly)

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Photo by Mpho Mojapelo on Unsplash

AUTHORDaniel Davies Insider Comment

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