THERE is a pattern emerging as the bonus season rolls on which threatens the competitiveness of European investment banks, which are already losing their grip on the market to their rivals across the Atlantic.
Banks such as JP Morgan, Goldman Sachs, Citigroup and Morgan Stanley, are coming out of the recession sooner than their counterparts. They are keen to pay their bankers handsomely if they perform (albeit according to the new EU bonus rules that are likely to come in this year). Goldman is the first to find a way of dealing with the new rules by getting regulatory agreement to pay a monthly allowance in additional to salary and a reduced bonus.
In contrast, the European counterparts often appear uncertain of the way to go, conscious that regulators, public opinion and the media all wish them to show ever greater restraint.
Credit Suisse recently announced it is paying many of its senior staff around one fifth of their bonuses in contingent capital that can be wiped out if the bank’s capital falls below seven per cent. In doing so, it is following a route already taken by its Swiss rival, UBS.
Deutsche Bank cut overall pay for its investment bankers by 14 per cent last year on a workforce believed to have been somewhat reduced. The giant US banks, by comparison, have all reduced pay by less than five per cent.
Observers say morale has dipped at Credit Suisse since news of its new policy emerged, with some arguing they could be penalized by events in other areas at the bank where they have no control.
Barclays is the one bank to show gains in its share of business in the European M&A and equity capital markets businesses, although its profits from trading bonds and fixed income securities declined last year.
Even here, there are doubts whether chief executive Antony Jenkins is as passionate about the future of the investment bank as his predecessor.
Jenkins is committed to bringing costs in investment banking (mainly on people) down to 35 per cent of revenues and earlier this week the bank committed to 400 job cuts in the area.
Thirty five per cent isn’t an especially low number but getting there could involve big cuts in remuneration or jobs.
At the moment Barclays is flying the flag for the European investment banks, apart from the pure advisers such as Rothschild, Lazard and the likes of STJ Advisors. But the bank will need to keep its strong team incentivized with a clear strategy and rewards system.
Pay is not the only thing required to keep talent in place but it is a pretty key element.
For some there’s an even better world out there. “All bankers want to be in hedge funds or private equity,” says John Ricco of recruitment group the Atlantic Company.