Morning Coffee: Bank invents extra senior job titles to avoid paying bonuses. The end of the road for the best job in banking

The sharp recovery in Hong Kong’s IPO market has left a lot of banking employers with a whole new set of problems.  For the global firms that had been gradually running down their franchises over a period of years, they need to quickly staff back up, and find some way of convincing local clients that their long term commitment to the market was never in doubt.  For domestic and Chinese competitors like China International Capital Corporation, it’s more a case of hanging on to their staff in a rapidly heating market.

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CICC is in a particularly difficult position.  During the deal drought, it was able to recruit staff simply by being one of the last players standing; in many cases, bankers who were at risk of being laid off by bigger Wall Street players were prepared to take a drop in compensation, simply to stay in the market.  That means it’s structurally underpaying, making it very vulnerable to losing people just at the time when they’re needed most.

But it’s hard to take the obvious solution and just pay the market rate. The Chinese government has made it quite clear that it doesn’t want to go back to the “hedonistic” pay and lifestyles that marked out the investment banking industry in the last boom. So how are they going to hang on to their Managing Directors?

The latest answer seems to be to try a version of a tactic that’s more usually applied to the junior ranks – if you can’t pay someone the money they deserve, give them a nicer title and hope that they’ll be happy enough with the recognition that they won’t bother finding out their market value.  So CICC will now have “Senior Managing Directors” as well as the normal kind.

This isn’t really likely to fool anyone; its purpose is more likely to be as a sort of promise to the rainmakers, that when the market conditions and political optics change, they will be looked after.  And it also frees up space for title inflation further down the chain; if all the managing directors worthy of the title are now called “Senior”, then you can be more generous in promoting Executive Directors to MD, Directors to ED and Vice Presidents to Director.

But the trouble is that once you’ve started this kind of process, it’s hard to stop.  Before long, the titles become meaningless and you start having to invent new ranks that are more senior than Senior.  Top-heavy structures always end up causing problems, not least because it can really cause brand damage if there are people out there with “Managing Director” on their business cards who aren’t really of sufficient calibre to represent the firm. “Titles are cheaper than cash” is one of those ideas which sound good, but which everyone who tries it seems to end up regretting and trying to reverse.

Elsewhere, Jim Zeltner, the President of Apollo Global Management, has given a speech at a conference, warning many of his private equity competitors that whether they realise it or not, their last fund launch might have been their last fund launch.  The slowdown in deals since 2022 has meant that investors have less cash flowing back to them, and consequently less to invest in new fund launches.  And in the absence of a “massive monetisation cycle”, that’s likely to mean “a natural washout” and “a fair bit of consolidation”.

Dominant players like Apollo usually use a lot more gentle and euphemistic language when they’re announcing that the game’s up and only the strongest will survive, so congratulations to Zeltner for giving the same message as Robert Lewin of KKR with a lot more candour.  But even if he’s right that Apollo will be leading that consolidation, it’s likely to be a very different new world for the whole financial sponsors sector. Without that sense of unlimited possibility and the constantly growing waves of money, they are likely to become just one more client group among others, rather than the single most important players in the banking industry.  And that, in turn, means that some other sector will be the destination of choice for the brightest and most ambitious young bankers.  We could be seeing the beginning of the end of an era.

Meanwhile …

There seems to be something about having spent formative career years at HSBC which makes people like redundancies.  Georges Elhedery has done it at HSBC itself, Charlie Nunn at Lloyds has introduced annual performance related cuts and now Nuno Matos is planning to reduce headcount by 8% at ANZ Bank. (Financial News)

Despite the court victories of Tom Hayes and Carlo Palumbo, there is still one LIBOR conviction which the SFO is determined to keep. Peter “PJ” Johnson of Barclays was a whistleblower with respect to “lowballing”, but since he pleaded guilty to other cases of LIBOR fraud (and his case didn’t involve the jury misdirection), he’s still got an uphill struggle to clear his name (Times)

It is not quite the same thing as title inflation, but making someone a “global chair” has the combined effects of allowing them to concentrate on clients, making them feel good and freeing up a management position for someone else to be promoted into.  JP Morgan has appointed Howard Chen, Charlie Dupree and Fred Turpin for FIG, M&A and Media groups respectively. (Bloomberg)

Lisa Yang is a Goldman Sachs equity analyst famous for writing an annual report on the music business called “Music in the Air”, and it seems that she’ll be following the music to a job at Warner Brothers. (Music Business Worldwide)

What’s $200m to JPMorgan?  It’s true that the losses attributable to Charlie Javice, convicted of misrepresenting the customer numbers of her fintech which was acquired by JPM, were barely material to a single quarter’s earnings, but this feels like a risky way to start your plea for leniency. (Bloomberg)

The first “Man v Machine Hackathon” seems to have ended inconclusively, with three of the winning teams using AI tools and three of them not doing so.  The winning app was from one of the “machine” teams, though. (WIRED)

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