Morning Coffee: Bank refusing to raise salaries spends fortune on headhunters. Challenging year gets suddenly worse
Now that inflation in the UK is expected to be 10% by the end of this year, junior bankers might be wondering when their next pay rise is due. It's been a few months now, and in the past year some juniors' salaries have risen by 40%.
Of course, it's always possible to opt out of the relentless cycle of inflation-induced and inflationary pay rises, but if you do, you risk evoking the kinds of complaints seen at Citigroup when its bonuses weren't as high as expected and its London juniors' salaries fell behind.
It's not clear whether Citi ever did hike its London salaries again (we suspect the answer is yes as the complaints coming our way seem to have subsided), but one bank is still holding out against the pressure for a hike. - The Bank of England, bastion of British monetary probity, indicated yesterday that it will only be raising pay for most of its staff by 1.5%.
This is a bold move: Bank of England staff are now looking at an 8.5% reduction in pay in real terms this year. It's all about setting an example. Bank of England boss Andrew Bailey said in February that employees across the UK had a duty not to demand big pay rises as the country battles to bring inflation under control; he himself will be taking no pay rise at all.
While this is all very noble, the clear problem with this strategy is that when everyone else is raising pay in line with inflation or beyond, you risk falling behind. And when you fall behind, it becomes harder to recruit and retain staff. Bailey himself earned £575k last year, which isn't all that much when you're in charge of a central bank employing 4,000 people and only two of the bank's other executive earned more than £200k, which is pretty much the going rate now for a student one or two years' out of university in an investment banking job.
There are already signs that this is becoming an issue. The Telegraph reported last week that the Bank of England is having big trouble hiring technologists and that it's spent £200k on headhunters in a few months this year. The Bank is supposed to be hiring an extra 100 people to deal with its new post-Brexit responsibilities, but this looks demanding. “We’re in a very challenging environment from a recruitment and retention point of view. It’s a very tight labour market," Sam Woods, head of the Bank’s Prudential Regulation Authority told a recent committee. Hiring and retaining staff is the Bank's "top management challenge this year," Woods added.
False economies are the danger here. If the Bank can't hire and retain people, it won't be able to do its work. And if it can't do its work, it will need to pay increasing amounts to headhunters to dig out people who are willing to work hard to compensate for all the work left undone and who don't expect to be paid market rate. Such people are hard to find, and headhunters could be expensive. The other alternative is simply to go with the flow and increase pay. Life is easier that way; just ask investment banks.
Separately, people are starting to mutter about 2022. While demand for junior M&A bankers still seems pretty thicc, other areas are looking a bit wonky. It's a "challenging year" said compensation consultant Alan Johnson yesterday amidst his predictions of a 70% drop in ECM bonuses. People might be let go, banks are battling inflation and the return to the office; the war for talent might become a ceasefire.
Following yesterday's 5% drop in the Nasdaq, traders are being more explicit in their prognostications. “Today is the first day I remember feeling just bad,” Danny Kirsch, the head of options at Piper Sandler told the Financial Times. “They have felt bad for a while but this is a more encompassing bad. There was nowhere to hide today.”
It sounds like SocGen bonuses could rise. The French bank said yesterday that higher spending reflected “variable costs linked to the growth in revenues.” Fixed-income trading reveunues at the bank rose 22% year-on-year in the first quarter and equities trading were up 20%. (Bloomberg)
Earlier this year, Société Générale moved a dozen bankers from Hong Kong to Singapore after officially designating Singapore as the back-up location for its Asia headquarters in Hong Kong. It's not easy to get people into Singapore any other way. “Singapore has these quotas . . . [SocGen] will never get them [in on longer-term visas],” one banker told the Financial Times. (FT)
A reminder that HSBC's Asia business isn't as profitable as it seems. Half its global banking and markets revenue booked in the east is derived from HSBC customers in the west. The bank says it's not arbitraging tax rates. (Bloomberg)
Following allegations that it caused stocks to fall with its block trades, Morgan Stanley faces potential civil liability from “claims that have been or may be asserted by block transaction participants or others” who may argue they were “harmed or disadvantaged” because of share price declines allegedly caused by the bank. (Financial Times)
Nomura banker's lawyer says it's ok to tell little lies to sophisticated clients. “They’re the wine sommeliers of the investment world. They know the vineyard, they know the grape, the soil, the value of the wine, how it all aged. They’re the NFL scouts who know every measurable trait associated with every player in the the draft.” (Bloomberg)
Bridgewater’s Pure Alpha Fund is up 28% year to date. (Business Insider)
Goldman Sachs and JPMorgan might subsidize staff traveling for abortions. (Bloomberg)
It's one thing hiring people. It's another getting them to turn up. "We have a generation of professionals who grew up on dating apps, where ghosting has been accepted as an annoying, but common, phenomenon. I believe that is leaking into the professional world.” (WSJ)
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