Morning Coffee: Banks that paid careful bonuses in 2021 forced to make amends. Travails of 43 year-old rates strategist
If you're looking for an indication of the pressure on investment banks to increase bonuses in 2021 vs. 2020, then Bank of America is it. After standing quietly in the shadows and watching while Goldman Sachs and JPMorgan proclaimed their intention of hiking bonuses by 50% and 40% respectively, Bank of America has now decided to do something similar.
Bloomberg reported on Friday that Bank of America plans to raise bonuses for its investment bankers by "more than 40%" this year, and that it plans to increase bonuses for people in its sales and trading business by "more than 30%." This is happening even though the fees earned by BofA's investment bankers last year were up by only 32%, and is even though fixed income sales and trading revenues fell by 9% in the first nine months and equities sales and trading revenues increased by only 23%.
BofA is paying over the odds to keep its people happy.
Naturally, the bank also reserves the right to inflict some disappointment. The BofA people briefing Bloomberg said bonuses for its bankers may 'vary significantly based on individual team performance, with some markedly below the average.' In fixed income trading, some parts of the business have been performing 'particularly well' and are likely to be paid more than others.
On the whole, though, BofA's pronouncement suggests that the substantial bonus increases coming at Goldman Sachs and JPMorgan are putting pressure on rivals to dig similarly deeply. At Bank of America, the pressure to pay is particularly acute after the bank allocated comparatively miserly bonuses in 2021 for 2020, prompting headhunters to warn of a wave of resignations if bonuses disappoint again. Bloomberg says the coming generous BofA bonuses (which are still being confirmed) will be a reflection of 'how businesses performed over the past two years,' implying they'll be partly to make amends for last year's parsimony.
The question now, then, is whether other banks will be obliged to do something similar. Citi and Morgan Stanley have been mysteriously silent on the size of their bonus pools. Deutsche Bank and Barclays have indicated that their bonuses will be up 20% and 25% respectively, which sounds a bit disappointing in the circumstances.
Banks that don't want to increase bonuses by huge amounts have a reasonable excuse. - After two years of elevated revenues, 2022 could be the year in which the banking sector returns to earth. However, this is precisely what BofA's own banking analyst Ebrahim Poonawala suggested in a note last week, and the bank seems to have sidestepped Poonawala's get-out clause. Instead, it seems that Bank of America post-Tom Montag will pay even better than BofA when Montag was around.
Separately, it's not easy being a rates strategist in the current market. It's even harder being a rates strategist who's also a working mother with school-age children.
Priya Misra, the head of rates strategy at TD Securities, says she's already sleep-deprived barely one week into the year. On one hand, Misra says she's still having to deal with COVID concerns that include testing her children before school each morning, on the other her job is increasingly demanding: "Instead of lower rates and Fed easing, we are grappling with how fast the Fed exits and how high rates can go higher. That can make anyone’s head spin.”
Although she's 43 and began her banking career in 2001, Misra reflects that she hasn't "lived through many episodes of a hawkish Fed.” This is making the current situation even harder to deal with.
Citi and Morgan Stanley are expected to communicate bonuses first, with both informing staff this Thursday. (Business Insider)
Citigroup staff in New York who don't get vaccinated by January 14th will be placed on unpaid leave and let go at the end of the month. More than 90% are vaccinated. (Bloomberg)
Credit Suisse Chairman Antonio Horta-Osorio will be rebuked for breaching COVID rules a second time and attending the Wimbledon tennis final without following Britain's quarantine rules. (Reuters)
Bob Sternfels, the new managing partner of McKinsey & Co, says the consulting firm is de-emphasizing employee tenure as a condition of promotion. "What that means is much more flexibility on time to partner, much more flexibility on the pathways to partner and much more flexibility on ways to have impact over time." (WSJ)
The problem with Hong Kong: it's the third least inoculated advanced economy, with just 62% of its population having received two doses of vaccine. Only 23% of the over-80 year-old population has had a first dose. (Bloomberg)
Citadel was the best performing multistrategy fund last year, with a return of 26%. (Bloomberg)
“You might have to go all the way out to 2024 before [banks'] earnings are higher than they were in 2021.” (Financial Times)
How my husband became addicted to day trading and racked up £300k in debts. (The Times)
In 2021, 27 major crypto firms hired 8,700 people. Many doubled in size. (The Block)
Larry Fink has a duck ringtone on his cellphone. (WSJ)
A barrister who claimed he was harassed at work for farting has lost his discrimination case. (RollonFriday)
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