Good Evening,
Welcome to the second instalment of our regular newsletter, which features exclusive content you can’t get in print or online. Today, we have two perspectives on the world of high finance. First up, a disillusioned former banker spills the beans about bonus culture. Then, a vice president at a famous multinational tells us how these institutions are trying to check their privilege without nixing their profits.
You’ll find links to recent pieces you might have missed too.
Bonus Bonanza!
A fifteen-year veteran gives the scoop on two key aspects of the game: the salaries and bonuses enjoyed by investment bankers, and how the industry continues to be fuelled by bonus culture, twelve years after the financial crash.
A love of money is important in the industry. It is why bankers stay working as long as they do. It is why university graduates are still lured in. And it’s ultimately why bankers are still the scorn of the general public.
Every action of a client-facing banker is driven by the magical carrot of a bonus, dangling at the end of the year. More deals mean more fees. More fees mean more revenue for the bank. And more revenue means a bigger bonus.
In the early 2000s, a bonus of 100% of your salary was probably the baseline. As you made your way up the ladder, 200%-400% of your salary was what you aspired for. A total package for a debt capital markets (DCM) vice president or a director (which is a rung in investment banking) in the early 2000s could comfortably have been in the £200-300k range, comprising a £50-75k base. And then potential uplift from there for ‘good years’.
The financial crisis of 2008 complicated this, of course. The negative press and subsequent wrath of the general public meant financial institutions had to feed bankers their bonuses more discreetly, through stock or deferred components.
Though bankers tend not to speak about their personal pay packages, you can pick up a general picture through talking to other bankers about their institutions. Pay structures now have vesting schedules and deferred payments. Structures also vary across US, European and Asian banks, with the American banks pretty much returning to pre-crisis levels. The American banks pay your average DCM banker $600-750K in a total package. The UK and European banks range between £200-400K, with roughly 25% deferred over three years and the remaining 25% in shares that would also vest over a three-year schedule. Mergers and acquisitions (M&A), as well as coverage bankers often make more, subject to ultimate deal revenues and the state of the broader M&A market. Needless to say, it is never enough.
It will be interesting to see how the world of investment banking copes with the coronavirus and its ensuing corporate fallout. An industry that relies on communication, travel, interactions and deal flow may struggle to sustain itself and pay out the bonuses that keep the machine moving.
Bankers are known for their eagerness to jump on the next flight. With many businesses struggling with the current pandemic, there will be a reluctance to engage in any kind of strategic initiatives – be it M&A or other opportunistic financings. It is hard to imagine bankers justifying long travel. However, I know bankers who used to get on a plane at the shortest of notices or slightest of hints from a client. All it took was a proverbial ‘showing of the leg’ and voila! Your banker was there.
In the UK, a director on our team was notorious for comparing the miles he had earned at the end of each year and bragging about the status he had achieved. ‘Oh man,’ he would say, ‘I’ve been on so many flights this year, they even know to take the macadamia nuts out of my snacks now.’
But you would think that the last financial crisis would have brought a bit of humility to the industry as a whole. Bankers should have learnt that not everything they touch turns to gold. Granted, there are larger compliance departments than five years ago – in some cases larger than the number of actual bankers themselves – but they do not seem to stop certain actors doing the same thing all over again.
From my perspective, there’s little to stop a repeat of the Great Recession. Back in 2007-08, Citigroup, AIG and a few others were deemed as ‘too big to fail’ in the US. RBS was one such institution here in the UK. It is exactly why the US and UK governments stepped in to bail these institutions out – the fear was that the systemic risk caused by the failure of even one of these institutions would be too much to handle. But in doing so, did the government just give bankers the license to continue on their merry way, because no matter what, there would always be a safety net there? With the merging of entities and the bloating of balance sheets, the group of organisations that are ‘too big to fail’ is probably bigger – and scarier – than before.
I listened to earnings calls that banks give to investors and analysts, as well as yearly results calls by the chiefs of all these institutions. And I often scratched my head. Rather than getting simpler, I would say the financials of these institutions have become more complex. Yes, you had your line items for income statements and balance sheets and so on, but each of those line items had such an excessive level of detail buried in the footnotes that you needed a Sherlock Holmes-style mind just to find them. In the UK, I often found myself trying to figure out what the true earnings of our company was – before exceptionals, after exceptionals; before charges, after charges. It’s all purposefully opaque.
But the gods of finance have offered the industry a shot at redemption, albeit in the form of a pandemic. Businesses are struggling, employees are laid off, there is a shortage of cash and we are suddenly in familiar territory again – we are entering the troughs of a recession. It looks like it’s going to be a big one.
So, yes, bankers can keep making those deals, keep their clients engaged and keep the money flowing. Whether people realise it or not, that’s part of what is needed. What banks can also do is lend more. To small businesses and to individuals, and do so without exorbitant fees, hidden charges or penalties. This is also a good opportunity for bankers to take their minds off their bonus. They could even sacrifice some of it. Maybe donate it to a charity of their choice. Whether they grab this opportunity and take it, whether they enforce these changes for the better… well, as a former banker, I wouldn’t be betting my bonus on it.
A letter from the Editor
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We’ve managed to do all of this with no full-time members of staff. We are committed to providing a platform to young writers, in an industry that often neglects them.
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Woke and Mirrors!
The Fence caught up with a young VP at a global investment bank, to talk about how their organisation is trying to embed social justice into the balance sheets.
Are you in the office, surveying your screen deck like a Master of the Universe?
No. I am actually on a boat at the moment.
An interview conducted from a mega-yacht. What an honour. Are you speaking to us from Capri? St Tropez? Are you popping bottles of Cristal?
Er, no. I’m actually with a few friends on a pocket cruiser, currently moored just outside Dartmouth. We’ve just caught some mackerel, which we’re going to have for dinner.
Oh. Our readers will be disappointed. But let’s talk social activism and global banking. Those famous bedfellows.
So when I joined in 2011, there was no specific diversity training within the graduate recruitment scheme. But at that time there was a strong commitment to advocating the interests of female employees. So, more than half of my intake were women. But even today no more than, say, 20 per cent of our directors are women. There is still a significant imbalance there.
How have things changed since then?
There have been small changes in diversity awareness. But the murder of George Floyd has been a tipping point. A black managing director wrote an op-ed about the racism he encounters everyday – even though he is in his mid-forties and an executive at one of the most famous companies in the world. And this has led to sustained action. There are internal committees being set up to make sure that our workforce is not only representative, but that representation applies to our leadership, too.
And what’s been the reaction on a ground level?
Well I think it’s led to a lot of soul-searching. You know, I’ve sub-consciously taken my career for granted, always put it down to the fact that I worked hard and I deserve it and all the rest of it. And that’s what I thought, at least, but reading and listening to my colleagues who haven’t had my advantages in life, well, that has made me keener to do my part.
In what way?
Around about 2015/2016 we started having Pride Week in the office, where we would have rainbow-coloured cakes served. Staff could wear pink shirts. You know, I thought it was quite patronising at the time, but there are about two or three of my gay colleagues I know of who are ‘out’, but this in an office of thousands of individuals. So obviously people feel the need to hide their sexuality.
Why do you think that is?
Well I don’t really know. It must be something to do with the atmosphere. It has made me keener, as I said, to try and do my part. Before if one of my colleagues was struggling, I wouldn’t say anything to them, because you don’t want to come across as patronising.
What other initiatives has your institution launched?
Well there is a commitment that our execs have made that we will no longer execute IPOs (Initial Public Offerings) for companies that only have men on their board. There are lots of big companies in Asia – especially in China and India – who only have men in leadership positions. So it will be interesting to see how that works out in the long run.
You’re working for a bank with interests in many different countries, all with different working cultures: this sounds very challenging indeed.
I can’t make any grand predictions for the whole industry, But what I can say is that within my office, in London, I am broadly optimistic that we can raise up our values. Everyone there is driven and extremely capable, yet also aware that you have a professional half-life of about fifteen years, owing to the workload. So that creates an appetite for change on our own turf, and that is something we can deliver, because we are working within a dynamic institution.
This is an extraordinarily dynamic interview! But we haven’t really touched on climate change. What’s your company doing to minimise their carbon footprint?
They’ve pledged hundreds of billions of dollars for green investment, to be spent over the next ten years. No drilling in the Arctic. But we will still be doing business with the big oil and gas companies, because they’re the ones that have the cash reserves to help economies prepare for climate transition.
Wow. I don’t really know what to say. Thank you for your time! And enjoy the mackerel.
Thank you.
Meanwhile, at The Fence:
For laughs: ‘In essence, my job is to make sure that everyone in the world knows about every single thing that’s happening at The New York Times, all day, every day, more or less non-stop, regardless of whether they read it or care.’
–We interviewed David Gallipoli-Jones, the New York Times’ New York Times Correspondent.
Insider Accounts: ‘The proposal for the new 21-story building that Taylor wanted to build had a mock-up of the new look market. It featured a white person selling yams to another white person, with a Jamaican flag plonked on top.’
–An activist takes us inside the battle to save Nour, Brixton Market’s beloved cash and carry, from redevelopment by a Texan DJ-slash-property developer.
’till next time,
TF
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