Morning Coffee: Crunch time for $4m bankers on vanishing guarantees. Bridgewater's surprise job cuts

There's excitement about 2025. This is supposed to be the year when sponsor deals come back as private equity firms return to the market. It's also supposed to be the year when IPOs come back. When M&A comes back. When banker hiring comes back. However, it may also be the year when banks are finally forced to jettison expensive bankers who aren't paying their way.

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The Financial Times bears the bad news. It's spoken to one bank chief executive who thinks "there is going to be a reckoning" because there will still be a "limited pie of deals."

The problem, says the FT, is that banks have spent the past few years amassing senior bankers, sometimes on packages as large as $4m, often on big guaranteed bonuses, and in many cases they still don't have much to show for it. 2025 is the year both when the guaranteed bonuses are lapsing and when the expensive bankers will need to prove themselves. Hence, the reckoning.

It will be worse at some banks than others. The FT notes that at Evercore, Moelis & Co and Jefferies, managing director numbers have risen 27%, 26% and 46% respectively since 2021. At Lazard, the compensation ratio is now 66%, compared to a target of 60%. 

The new hires need to prove their worth. If they don't do it in 2025, they may not get the chance again.

Separately, Bloomberg reports that hedge fund Bridgewater has cut 90 jobs or 7% of people in a quest to become "nimble." The cuts come after double-digit returns and therefore seem surprising, but Bridgwater declares that it's aligning its strategy to its objectives and says it will achieve, "a more dynamic ecosystem of ideas, innovation, and impact that underlines our meritocratic values.”

Having dumped 90 of its existing staff, Bridgewater will also seemingly be open to hiring some new ones. It's reportedly open to some "selective hiring."

Meanwhile...

A new report highlights the Gen Z problem at audit firms. “The younger generation have differing views on careers than their older counterparts, with many viewing their work more as a job, rather than a career, and are therefore more likely to leave the profession if presented with more attractive opportunities”. It doesn't help that they won't work long hours and that much of the boring formative work has been offshored. (Financial Times)  

Steve Diggle, a former Lehman Brothers trader who now runs a family office, says it feels a bit like 2005-2007. “The number of fault lines out there today are greater, and the chances of something going wrong are significantly greater, but risk prices have come down." Diggle also observers that traders who've only known a bull market have driven tech stocks to dizzying heights. (Bloomberg) 

Private equity firms want access to US retirement savings and are ready to lobby Trump. “We’ll look for opportunities to allow the average investor, if they want to, to diversify their portfolio and have the same access that wealthy individuals do to a private fund.” (Financial Times) 

Morgan Stanley worked on Ideanomics acquisition of VA Motors in 2023 and is owed $12m in advisory fees. But Ideanomics has gone bankrupt. (Bloomberg) 

The fact that occupational surnames like "Baker" or "Smith" are so common today is good evidence that these identifiers didn't shift around much. Compare that to today, where it's not at all shocking to meet someone who's done several completely unrelated jobs in the first decade of their career. (The Diff)

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