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Morning Coffee: 49 year-old MD aims to pay off mortgage with single M&A deal. Hedge fund prodigy lost $1.5bn

Jefferies, WhatsApp, FCA, hedge funds, Sears, Kmart, Sears Holdings, Edward Lampert, ESL Investments

Shot of a businessman looking displeased while reading something on his phone

Can you still make a massive bonus in M&A? Maybe, if you’re an MD at Jefferies.

The sorry tale of Christopher Niehaus, the 49 year-old managing director on Jefferies’ industrials team who was slapped with a £37k ($46k) fine sharing confidential information through WhatsApp, suggests giant bonuses are alive and well in some investment banking divisions.

Niehaus’s final notice from the UK’s Financial Conduct Authority says that he used Whatsapp to boast about the likelihood of receiving a giant mortgage-eradicating bonus from Jefferies if another client’s acquisition went through. We don’t know which client that was, or how big the deal was. Nor do we know whether Niehaus was simply boasting, or whether his mortgage was already miniscule. Still, it’s nice to think that Jefferies pays well.

Niehaus told the FCA he “didn’t know” why he disclosed the information, and that he only wanted to impress his friends. Nonetheless, Jefferies does have a reputation for generosity in London. The bank’s regulatory fillings suggest it rewards its code staff (of whom Niehaus would have been one) with over £1m ($1.25m) in total compensation annually, of which £800k is a bonus paid entirely in cash.

Niehaus only worked for Jefferies for 22 months and is now employed by EMV Group, a “corporate finance specialist.” Unfortunately for him, Jefferies is also known for it propensity to clawback its big cash bonuses from people who leave or are fired. We assume Niehaus still has his mortgage after all then.

Separately, hubristic hedge fund managers beware: Investing in a company is very different from running one, and your investment prowess will not necessarily translate into management skill.

Case in point: Edward S. Lampert, who left Goldman Sachs at age 25 to launch his own hedge fund, ESL Investments, whose now tenuous fate it tied to its enormous, long-term bet on venerable yet struggling retailers Sears and Kmart.

The wunderkind once compared to Warren Buffett became the first person on Wall Street with an income north of $1bn in a single year in 2004, but since taking over as chairman and CEO of Sears Holdings, the iconic brand – and his hedge fund – have been in a slow, painful decline, according to the New York Times.

Last week, after seven straight years of huge losses, Sears Holdings’ CFO admitted: “Substantial doubt exists related to the company’s ability to continue as a going concern.”

An Ayn Rand superfan with a 288-foot yacht called Fountainhead, Lampert has a private equity-like philosophy of turning around a company: cut costs, and then cut more costs. Even as Sears Holdings shares have plummeted from $162 in 2006 to $11, he’s sticking with his strategy of cutting “at least $1 billion in costs on an annualized basis.” Sears has been haemorrhaging more than a billion dollars in cash every year.

Meanwhile:

Wall Street’s Whatsapp texting is out of control. (Bloomberg) 

Even with stocks at record highs, equity trading revenue at U.S. banks fell 13% from 2015 to 2016 vs. a 9% rise in overall trading driven by interest-rate and currency products. (WSJ)

Credit Suisse’s chairman said the wages that the banking industry pays may have come down since the financial crisis, but his bank’s total compensation bill of remains too high in relation to overall spending. (finews.com)

Citi’s European head told employees to prepare for a hard Brexit but not to panic. (Financial News)

J.P. Morgan is considering buying a Dublin office building that can fit a thousand employees as a Brexit contingency plan. (Bloomberg)

A number of other banks will announce plans “within weeks” to move operations from London to continental Europe in preparation for Brexit. (Business Insider)

Wages for college graduates across many majors have fallen since the 2007-09 recession. (Bloomberg)

BlackRock’s Larry Fink, the CEO of the world’s largest money manager by assets, is the centerpiece of a new installation at the Whitney Museum of American Art’s Biennial in New York. (WSJ)

Photo credit: laflor/GettyImages

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