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Morning Coffee: HSBC’s pay warning for bankers everywhere. Goldman Sachs on the ‘European banking crisis’

HSBC pay

It's a grey day for senior bankers at HSBC

When it comes to pay, HSBC has been a little confused of late. Firstly, it was going to freeze pay in 2016. Then it wasn’t.  Then it was going to increase pay for everyone, including senior people in its wealth management arm and retail bank. Then it wasn’t. Then there was speculation that HSBC – along with other banks in the City of London – might increase allowances for senior staff to offset the European Union’s new restrictions on bonuses. Now it seems that it won’t. – That HSBC will, in fact, do the exact opposite.

Instead of increasing its range of allowances for its most senior bankers to offset the EU restrictions, the Financial Times reports that HSBC will be decreasing them. Where senior HSBC bankers previously received ‘pension allowances’ equivalent to 50% of salaries, they will now receive pension allowances equivalent to 30% of salaries instead. The reductions are material: HSBC CEO Stuart Gulliver will be £250k worse off as a result. Meanwhile, HSBC’s more junior bankers are getting a salary rise. The ‘juniorisation’ of the industry continues apace.

Separately, Jernej Omahen, head of European financials research at Goldman Sachs, has released a short video looking at whether European banks are on the cusp of another financial crisis. Spoiler: Omahen thinks they’re not. Full blown financial crises are usually caused by a lack of liquidity, says Omahen, and there’s little of that in Europe right now. Wholesale funding markets are still open, central bank liquidity backstops introduced during the last financial crisis are still in place, and European banks’ use of the European Central Bank’s funding facility is €700bn lower than it has been for the past three years.

This does not mean, however, that European banks are in for an easy time. Omahen notes that there are also some very valid concerns about their future profitability. Revenues are being “pressured” by the negative interest environment and there are indications of “softening” credit quality in emerging markets and loans to oil and gas companies. If profits are to be maintained, European banks will need to cut costs, says Omahan. – The only problem is that they’ve been cutting costs since 2008, and there are no easy cost levers left to pull. In the circumstances, cutting pay for expensive senior staff makes eminently good sense.

Meanwhile:

It will now be impossible for sterling FX traders to go on holiday before June 23rd. (Bloomberg)

David Cameron’s EU deal was good for the City of London. (Politico)

Deutsche Bank wants its trading business to generate a return of 10%, but probably won’t cut pay to punitive levels because it wants to keep staff motivated. (Bloomberg) 

There are never any bonuses at Handelsblatt and it’s now worth more than Deutsche. (Reuters) 

Jes Staley’s choice of replacement for Tom King as CEO of Barclays’ investment bank will be crucial. (Bloomberg)

Citi’s Singapore country head is retiring after 28 years. (Reuters)

UBS has been hiring for its US equity capital markets business. (Bloomberg) 

Beware the curly-haired stranger with your client list when you return from maternity leave. (Business Insider) 

You could be earning £110k a year as the head of ‘research and insight at a tech company.’ (Guardian)

When being frank in an exit interview is a waste of your time. (Forbes)

Photo credit: HSBC Tower, Canary Wharf, London by Chris Beckett is licensed under CC BY 2.0.

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