Paying for talent – where will it all end?

Right now, it’s no secret that banks need to offer higher wages to persuade bankers to join or even stay. It’s fine as long as the income holds up, but some people are already wondering what happens when the music stops.

U.S. investment banks that have so far released third quarter 2021 results have all revealed they are paying their staff more than the same time last year.

Morgan Stanley spent $ 5.9 billion on compensation in the third quarter of 2021, up from $ 5.1 billion in the same quarter of 2020. BofA’s salary and benefits bill reached $ 8.7 billion, up from $ 8 billion. , $ 2 billion a year ago, and the situation was similar at Citi, with the group’s spending on compensation and benefits increased from $ 5.6 billion in Q3 2020 to $ 6.1 billion in over the past three months.

Morgan Stanley linked rising costs to “higher revenues.” Indeed, the remuneration at MS as a proportion of turnover has in fact increased from 43% to 40% between last October and today.

But if banks prefer to view the rising cost of employing bankers as a natural response to the strength of the business environment, this is also partly due to pressures in the labor market and the struggle to retain the employees.

“The market is just crazy right now and it is under a lot of resources because we are seeing a huge move at the analyst and associate level, a huge move from the bank to the long side and so on. Headhunter said Global Capital in September. “We also continue to see interesting senior executives evolve into corporate development roles and those kinds of things. “

“Labor inflation is a question,” conceded JP Morgan’s Barnum in response to a question from an analyst on spending Wednesday. “You’ve seen us raise wages in parts of the United States at the entry level. It just came into effect in September. And looking outside, we see a lot of churn. “

And if the increases only went into effect in September, that means much of the impact of pay increases is still visible in earnings reports. If incomes don’t keep pace, tough decisions could be made, in part because banks no longer have the same ability to attract talent with huge bonuses as they once did.

“You don’t have the same ability to manage your cost base because a much larger proportion of it is fixed,” noted the recruiter. “So the only way to manage it is to reduce it, rather than managing it by reducing the bonus pool, because the bonus pool is a significantly smaller share of the total cost of people than before. “

Analysts are already asking pointed questions about the salary increase, although it should be noted that they do not get upset about the salaries of junior bankers.

In August, Citi revealed new $ 5 million bonuses for CFO Mark Mason, CEO of institutional client group Paco Ybarra, and company chief operating and technology officer Michael Whitaker, related to the efforts of the bank to comply with regulatory requirements in order to improve its risk management processes.

In their first opportunity to comment publicly on the plan since its announcement, analysts have not left it out.

“As shareholders and those who represent shareholders, we see this bonus system before we see the targets,” Wells Fargo’s Mike Mayo said during Citi’s earnings question-and-answer session Thursday. “So I guess my question is, do you have the targets?” And if so, can you reveal them? Although I suspect it won’t be until March 2nd. Or don’t you have any goals yet? Or what’s going on? Because it doesn’t do any good for us investors anyway.

CEO Jane Fraser tried to defuse the situation by stressing that she and the board would hold management accountable, but also said she needed to “retain key talent because it’s a pretty tight talent market. right now, as we all know ”.

“To empower people and get results, we need both carrots and sticks,” she said.

It is fair to say that this did not satisfy everyone.

“You had long-term incentive compensation that you always paid to your executives, just like everyone else. So the transformation project appears to be beyond that, ”said Vivek Juneja, analyst at JP Morgan, later in the call. “Shouldn’t that be part of the long-term pay and bonuses?” I’m trying to figure out what the logic is behind adding an extra payout here, as that’s what management is already partially compensated for. “

What else could Fraser say?

“We need to retain key talent, and it’s a very tight talent market, as you know,” she reiterated, while adding that the additional bonus system was “fully aligned with the interests of shareholders “.

So who moved in the midst of this battle for talent?

Marc Chowrimootoo is among those who recently decided to switch to the buy side, having served as Managing Director of Goldman Sachs’ leveraged finance team in London.

Global Capital reported Wednesday that he was joining alternative debt specialist Hayfin, which was founded in 2009 by former Goldman partner Tim Flynn and Mark Tognolini, another Goldman alumnus. Birds of a feather, as they say.

Remaining in leveraged finance, Mark Richmond is heading to Barclays after a second stint at BNP Paribas in London.

In the Nordic equity markets, Jens Plenov has stepped down as Global Head of ECM at Danske Bank for Carnegie Investment Bank. After his departure, Dankse chose to set up a co-responsible structure, with Christian Hansen and Niels Erik Nielsen taking over.

Amid upheavals in the labor market, even longtime mainstays are being dislodged, like Rutger van Nouhuijs, who is leaving ABN Amro after 32 years at the Dutch bank.

He was chosen by Citi to oversee banking, capital markets and advisory in the Benelux region, which the US bank sees as a “significant portfolio opportunity”.

But he will stay with ABN long enough to pass the baton to the man chosen to replace him, Dan Dorner. This is not exactly an identical replacement, as ABN is in the process of reorganizing its divisional structure into three sections. Dorner, who rose through the ranks as a loan, debt capital markets and restructuring banker, will sit atop the corporate banking unit.

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