Morning Coffee: Citi’s plans for London bonuses after the cap seem disappointing, but may not be. Dan Pinto might want to talk to Colm Kelleher

After the news this weekend that Citi was planning to follow other London banks and relax its cap on variable compensation, we now have the announcement.  And it’s a little bit surprising.  According to the internal memo, Citi only intends to raise the cap to allow bonuses that are six times base salary. That’s significantly less than Goldman Sachs (which has indicated it might go up to 25x), and seems to be the lowest multiple so far made public.  (JPMorgan and Barclays have both said that they would pay up to 10x, Morgan Stanley has lifted the cap but no numbers have been made public yet).

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Does this mean that Londoners who really want to be rich should all be trying to work for Goldman and should avoid Citi?  Probably not really.  At the end of the day, the wide spread in bonus ratios ought to itself be a clue that there’s more to these announcements than meets the eye.  The labour market for bankers is pretty active and liquid – the market for the kind of people that get paid bonuses at the top of the scale even more so.  It’s just not sustainable for employers in the same industry to be paying their rainmakers hugely differently on a total compensation basis.

What these ratios are really telling us is more likely to be something about the extent to which each bank plans to even things up between the two sides of the Atlantic.  The very high cap at Goldman Sachs, for example, means that even in businesses (like some niches of FICC trading) where the US market convention has been to pay low fixed salaries with practically unlimited upside, it can move people from New York to London without changing their contracts. 

A multiple of 10x isn’t quite so aggressive.  It recognizes that most bankers aren’t hard-charging risk-loving traders, and that they actually valued the stability which came from the increase in base salaries when the bonus cap was brought in.  Given that there are still plenty of European banks subject to the regulation, it’s not really possible to bid down basic pay all the way to US levels in the short term.

Which, in turn, sheds some light on the Citi 6x ratio.  Although the bank has said that it will be “reducing” the use of role-based allowances (temporary increases in basic pay, often given to US expats in London, or to bankers who have taken on new responsibilities), it looks like Citi might be planning to do so more slowly than some other banks, or that they’ve been using them more aggressively to begin with. If you have accommodation and school fees to pay, you might actually be happier with this more certain option.

Separately, in a life which has included experiences as varied as fighting for Argentina in the Falklands War and running an investment bank in London, JPMorgan’s Dan Pinto has had more opportunity than most to reflect that it’s a funny old world and you can never tell what’s going to happen next.  Having been the presumptive “emergency candidate” to replace Jamie Dimon for many years (and indeed, having actually served as temporary co-CEO during Dimon’s health emergency in 2020), it’s now becoming apparent that the balls aren’t bouncing that way, and it maybe he's not going to get the top job.

Although Pinto remains JD’s right-hand man, as President of the company, his old job at the investment bank is being used to give experience to Troy Rohrbaugh and Jenn Piepszak, while Pinto’s own lieutenants like Vis Raghavan have moved on.  According to one JPM executive talking to the Financial Times, “A lot of his power base has been dismantled”.

It’s a familiar story in the industry.  Almost every bank has a “best CEO we never had” figure, generally someone who’s hugely respected, often precisely because they lack the final few drops of political astuteness that would have taken them all the way.  And sometimes they surprise everyone – Colm Kelleher, for example, never quite made it to the top job at Morgan Stanley, but built a reputation that quickly saw him come back from retirement to be the ultimate power broker as Chairman of UBS.  It might be unwise to write off Dan Pinto quite yet.

Meanwhile …

The transfer market for sports bankers doesn’t seem to work quite like it does for sports teams.  Inner Circle, a specialist investment banking boutique, sued Bluestone for allegedly trying to recruit one of its stars.  The lawsuit (which seems to have been based on a trade secrets argument) has been dismissed. (Bloomberg)

Young computer engineering graduates who join Citadel get a two-week boot camp introduction, which includes simulated trading competitions as well as coding exercises and tuition on the tech stack.  The idea is that everyone has to be “business minded” (Business Insider)

But if you really want to understand coding, you ought to try to create your own programming language, and not worry too much if it’s terrible. (Technically A Blog)

Andrew Law, the chief executive at Caxton, is happy to lead from the front.  The global macro fund he personally manages has accounted for the lion’s share of the $270m gains they’ve made this month, from big bets on US interest rates and the yen. (FT)

Chatbots can apparently “conduct the thankless tasks like any eager-to-please intern, including filtering through regulatory filings, summarizing research and writing basic code”. Hedge funds like Balyasny and Man Group want them to also be able to act like a fully fledged analyst. Although some might say that ChatGPT is already good at coming up with terrible investment ideas and guessing at facts it doesn’t know. (Bloomberg)

Apparently, over the summer Deutsche Bank has advertised its intern program by saying “We’re looking for a Brat in finance” on Instagram.  What are they on about? If you want to feel unbelievably old, try to understand even a tenth of the cultural references in this explainer. (Guardian)

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