Morning Coffee: JPMorgan and Bank of America try to avoid offending the client from hell. Here are the likely winners and losers in this year’s bonus rounds
There are many ways to get fired as a client of a large investment bank. For example, if you are considered to be risky from a compliance or political risk point of view. If you’ve been involved in dealings which cost the bank a lot of money in the past, or if your business creates a conflict with more profitable clients. Sometimes, you can get blackballed simply because you’re really annoying to deal with.
Or, as might have happened in one prominent example, a client can be fired because the bankers have been trying to get rid of them for years, but didn’t feel able to do so while they were President of the United States of America. According to Donald Trump (and we haven’t heard the other side of the story), shortly after leaving the White House in 2021, he got told by JPMorgan that they were closing his accounts. He then went to Bank of America where, in his words, Brian Moynihan had been “kissing my ass when I was President” but they didn’t want his business either.
According to President Trump, “I went to another one, another one, another one. I ended up going to small banks all over the place”. (Among the “another ones” may have been Deutsche Bank, which also cut ties with him around the same time).
The trouble with getting rid of clients who are more trouble than they’re worth, though, is that circumstances change. In the immediate aftermath of the January 6th 2021 attacks on the US Capitol, with events like the Four Seasons Total Landscaping press conference in recent memory, the risk versus reward calculation must have seemed pretty obvious.
But one of the most surprising comebacks in political history happened, and a politician/businessman who looked like yesterday’s man in 2021 is now the person in a position to pass laws on “de-banking”. Consequently, few of the banks he mentioned feel like directly contradicting him, other than to say that they don’t close accounts for political reasons. The lessons for bankers to learn is to choose your clients carefully in the first place, and that in banking more than almost any other industry, what goes around comes around.
Elsewhere, another example of the way that the banking industry can surprise you is that despite the obvious indications in the first half of the year, 2025 might be a pretty good bonus year after all. The Johnson Associates survey data is out, and it is now pointing to bonus pools broadly in line with levels last seen in the bumper year of 2021. That would be roughly a 5% increase on last year.
However, the rewards won’t be evenly distributed. There are still large parts of the industry (like financial sponsors) which are in an actual drought, and these segments won’t be able to pay as if it was a bull market. Johnson Associates are predicting “total incentive payouts” flat to 5% up for advisory, flat to 5% down for equity capital markets and increases of as much as 20% or even 30% for fixed income and equities trading.
Veteran observers of might raise an eyebrow at that one. Historically, it is somewhat rare for Sales & Trading to come out of a compensation committee as victors. And although revenues have been tight, the labour market for advisory bankers, particularly at the rainmaker level is surprisingly hot. Financial sponsors bankers never admit to a bad year – they either do well in revenue terms, or they point to an excellent pipeline.
The sluggishness of that pipeline, however, can’t be denied. According to Johnson Associates, private equity bonuses will be flat, and “compensation expectations are somewhat misaligned with market/firm realities”. Even private credit managers, who have enjoyed huge asset inflows in past years, are only looking at a range around 5% increase. The best paid people on the buy side, with potential for 10% higher average bonuses, are those who are lucky enough to work in “secondaries” – effectively, the private markets equivalent of sales and trading.
Meanwhile …
As an example of how hot the secondaries market is right now, four Morgan Stanley bankers from the private equity secondaries unit have been hired as a team to go to HIG Capital which is launching a new fund. (PE Insights)
Although slightly in the shadow of Unicredit, the other big Italian bank, Intesa SanPaolo, has a reasonably big investment bank. It was involved in 15% of the infrastructure deals last year, and the head, Mauro Micillo is an Anglophile who loves Wimbledon and Oxford University. (The Banker)
It’s a job which requires a PhD qualification in economics, plus considerable research prowess. It pays $195,000 a year, which is good money by any standards other than banking. But it also comes with a massive set of political headaches – it might be difficult to fill the vacancy that’s suddenly arisen at the head of the Bureau of Labor Statistics. (WSJ)
The Oracle of Oxfordshire, as nobody but paid PR advisors ever called Neil Woodford, is no more. He’s been fined £6m and banned from senior roles after the FCA inquiry into the collapse of his Equity Income Fund. (Financial News)
Older heads on the trading floor will remember Phil Falcone for having made billions at Harbinger Capital during the last financial crisis. These days, unfortunately, after a string of bad luck and adverse regulatory decisions, he mainly only appears in the news after losing another lawsuit relating to loans taken out against his art collection. He might not be the owner of a Picasso for much longer. (ARTNews)
KPMG has a training facility called “Lakehouse” in Orlando, Florida, where client facing employees are sent twice a year. It’s apparently kitted out with all sorts of perks and attractions, and is still cheaper to run than the hotel rooms and steakhouse dinners that staff used to book for themselves. (Business Insider)
During an extremely messy set of alleged actions relating to closing a client account for AML breaches, the former CEO of US bank Flagstar took a call from lawyers while having his head rubbed by a junior employee who was sitting on his lap. (NY Post)
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