Morning Coffee: Deutsche Bank discovers Morgan Stanley's way of cutting pay. The bag carrying job that gets you to the top of BlackRock
If you can’t pay the fine, don’t do the crime. Since regulators are getting salty about a perceived lack of connection between the pay bankers get and the risks they take, the WhatsApp affair has turned out to be pretty well-timed in terms of the opportunity it gives to management teams to make a very public display of forcing bankers to bear the financial consequences of their own misdeeds.
Deutsche Bank and Barclays are the latest to announce that bonuses are going to be adjusted for the cost of the messaging settlement, after Morgan Stanley three weeks ago. There seems to be a spectrum of responses – MS had a quite elaborate formula based on how many messages you had sent and how much you should have known better, while Barclays seems to have just dinged the whole bonus pool by £500m ($600m), pending investigations into some of the worst offenders who might get bespoke penalties later on.
Deutsche appears to be somewhere in the middle – the wonderfully named “consequence management framework” will take into account the “quantity and quality of violations” and “this will also impact performance evaluation, individual compensation and promotion”. In all cases, unvested deferred compensation from previous years is at risk, as well as this year’s bonus.
This is likely to be a popular move with shareholders, regulators and industry analysts. Is it going to be the new normal?
The answer to that would be yes and no. In many ways, this kind of compliance related clawback of compensation ought to have been regarded as the old normal. Compliance is part of the performance review system for more or less every banker on the Street – if there’s any firm out there which doesn’t include even a general reference to it in the annual objectives, we’d love to hear about them. What’s new here is the very direct connection between the bad action and the consequences.
And when you think about it, the WhatsApp scandal was quite unusual, and very well suited to this kind of treatment. The quantity of the fines were in the hundreds of millions of dollars and there were dozens of individuals (at least) involved, making it possibly to recoup a meaningful proportion of the cost. (You couldn’t do this with a $9bn sanctions case).
It’s also very clear who the perps were – the crime and the evidence, in this case, were the same thing. There’s no question of blurred lines and shared responsibility. And unlike the mortgage bond fines, the LIBOR fines, et cetera et cetera, there was no possible suggestion that responsibility went to the top. Banks have always hated it when employees use unofficial communication for company business. Like using one’s personal mobile phone on the trading floor, the use of WhatsApp for client communications might have been something that everyone did, but it’s hard to argue that ignorance of the law should have been an excuse.
So although some bankers might feel aggrieved at having been punished for something that didn’t really involve dishonest intent, they’re unlikely to find sympathy. If the worst scandal you’re ever involved in is the WhatsApp affair, you’ll have had an exemplary career.
Elsewhere, if you’ve ever seen a really important person arrive at a conference, you might have noticed that he or she arrives with an entourage, not wholly unlike that of a rapper or influencer. The fresh-faced crew of youngsters who are there carrying bags, asking questions about the projector and passing on messages are the “staff”, and their boss will usually be a mid-career executive back at head office called the “chief of staff” to Mr (or Ms) Big. For BlackRock CEO Larry Fink, this role is now filled by Willie Alford, who’s taking over from Sarah Schaffer.
The person in this role shouldn’t be underestimated; chief executives can have their pick, and they tend to want their office to be run by someone they like and trust. Most firms use it as an accelerated training program to fast-track executives who are on the rise. At BlackRock, the job is specifically designed for this purpose as a two year posting; previous incumbents have gone on to run corporate strategy, join the Global Executive Committee and run BlackRock UK. If you’re ever offered the opportunity to carry a bag, grasp it.
Even the optimists had always said that the recovery would be an H2 phenomenon, but the evidence so far appears to be continued drought; JP Morgan CFO Jeremy Barnum said at a conference that banking revenue would be down around 20% in the first quarter. Since Q1 of 2022 started quite well before the Russian invasion of Ukraine, that would indicate broadly flat trends. (Reuters)
Congratulations to Matija Pecotic, who had given up a career as a tennis professional and gone into finance as a real estate banker in Florida (after being the greatest ringer the Harvard Business School tennis team has ever seen). He has managed to beat a former world top ten player in an ATP tournament and now has to ask for a week off work to play in the last 16. (Guardian)
Sam Chaturvedi, previously an MD at Credit Suisse, will presumably be saying goodbye to some deferred or clawed-back pay as he’s gone to join the financial sponsors group at BMO. (Bloomberg)
John Moulton, the grand old man of British private equity, gets grumpy with “smooth young people” in investor relations departments and gives us all a translation guide from IR-speak to reality. (Financial News)
Workers in the USA are slightly less likely to say that they feel burned out than last year, but things have worsened in the UK and Europe to a sufficient extent to bring the overall burnout survey for Future Forum to a worse level than seen during the pandemic. (Bloomberg)
Hedge fund legend Michael Steinhardt used to have a historically significant collection of antiquities; now it’s much smaller as it turned out that a lot of it was stolen goods. (New York)
Parents are really keen on the idea of having out-of-work standup comedians for babysitters, as they’re amusing and teach the kids social skills. Possibly a useful side hustle for laid off bankers? (Bloomberg)
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