The trial of Kweku Adoboli may be creating nostalgia among all those who remember Deutsche Bank when it wasn't co-managed by a senior retail banker and determined to be the first mover in reducing pay and implementing punitive bonus deferrals.
The arrival of Yassine Bouhara, hired from Deutsche as UBS's co-head of equities in May 2010 was coincident with a change of culture at UBS, Adoboli's lawyers argued in court yesterday. Bouhara hired heavily - often recruiting former colleagues Deutsche, and the influx of new Deutsche bankers allegedly led to higher risk-taking and to a bigger drive for profits.
"Mr Bouhara made it very clear to the junior traders that in the new world if they made loads of money for the book they would make loads of money for themselves," claimed Adoboli's lawyer Charles Sherrard. Ron Greenidge, former head of the ETF desk at UBS and a UBS lifer who'd worked at the bank for 19 years admitted the Deutsche bankers weren't the same: "The culture that they seemed to add was different," he conceded.
The implication from Adoboli's lawyers is that UBS was a stodgy sort of place until the hot shot aggressive risk takers from Deutsche arrived to shake things up. Post the Deutsche Bank influx and under the new Deutsche-like culture, Adoboli's team claim risk limits were often overlooked and it was all about making money. Maybe this was part of the Deutsche culture? It definitely doesn't sound that way at Deutsche any more.
If Deutsche Bank isn't a risk-hungry profit-focused pay-for-performance sort of place nowadays, where is?
Try BTG Pactual. As we noted in April, BTG makes revenues of $1.9m per employee - three times as much as the average investment bank, and has been increasing VaR substantially. While other bank struggle to attain double digit returns on equity, BTG is making around 30%. Back in April, we pointed out that David Herzberg, BTG’s managing partner and head of international equity trading, was hiring in London (allegedly through Spencer Stuart). Since April, BTG has registered 7 new people with the FSA, including Joakim Larrson, a former hedge fund salesman at Deutsche and Philippe Mathieu, a former derivatives trader at Nomura
BTG's second quarter results show that it increased global headcount by 15% year-on-year in the first six months of 2012 and now employs 1,434 people. Over the same period, bonuses increased by 134% and salaries and benefits increased by 33%. While other banks are rushing to incorporate measures of ethical behaviour into bonus calculations, BTG also says its bonuses are still calculated according to a refreshingly simple profit-based formula dependent upon: "a percentage of our adjusted revenue, excluding interest and other revenues and operating expenses."
However, there are downsides to working at BTG. CEO Andre Esteves has given a long interview to Euromoney in which he says investment bankers in general have become complacent. They want to be paid like entrepreneurs, says Esteves, but they also want 30 days' holiday a year and to be able to switch jobs every two or three years. But this isn't how entrepreneurs behave. If you want to make money, you need to be obsessive about where you invest and to, "stay at your company forever," says Esteves. You must not "even consider changing your job."
BTG locks in its partners by compelling them to hold all their equity in the firm in a vehicle jointly owned by all the partners. If a partner leaves or is ejected for poor performance, his stock must be sold back to that vehicle at book value. There are no options, there's no vesting date, and there's no stock dilution, says Esteves.
The upside, is that if you hang around for a long time as a partner at BTG you can become very rich. The downside is that you'll take a big financial hit if you're forced to sell at book value and that you're expected to stay forever. BTG might be the new risk-hungry bank on the block. It may even pay bonuses which are a straight percentage of profits, but it's not that simple once reach the senior ranks there.