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EDITOR’S TAKE: Investment bankers are still selfish beasts

This may come as a terrible shock to anyone at Bank of America this week, but it will be no great surprise to people at Nomura: investment bankers are mostly interested in maximizing short term personal gain.

Bankers at Nomura had this amply illustrated back in October when they kindly extended a welcoming hand to the destitute souls of Lehman’s equities team. In return, senior Lehman bankers negotiated inflated two year packages, beyond not only Nomura-Man’s wild and craziest dreams, but which left the incomers relatively immune to subsequent layoffs when they came.

It now looks like history is repeating itself, if not precisely, at Bank of America.

Despite making a loss of $27bn in 2008, the Financial Times today reports that Merrill Lynch may have paid $3-4bn in bonuses for the year.

Merrill’s total compensation expenditure for the past 12 months, salaries included, was $15bn, a reduction of only 6% on 2007. Given that headcount fell nearly 9% over the same period, average comp at Merrill Lynch actually rose, to $256k – a first for any bank, let alone one which was barely solvent.

It’s little surprise, therefore, that Merrill appears to have been keen to pay its people before BofA got hold of them: bonus payouts were apparently brought forward from late January to December 29th.

At Bank of America, meanwhile, bonuses are announced this week, and following the horror of Merrill’s fourth quarter loss they’re likely to be dire. Moreover, with Merrill’s Montag now running the combined capital markets operation, BofA bankers look set to come off worst from the 4,000 imminent redundancies at the combined investment bank.

If Merrill and Lehman bankers don’t exactly appear contrite, that may be because they’re not. And if they don’t appear overly concerned about endearing themselves to their new owners, that may also be because they’re not either.

Herein lies the cultural problem at the heart of what have now been proven as unsuccessful investment banks: emphasis on short term individual reward with little consideration for its longer term implications.

It would be nice to think that those who made the biggest mistakes over the past few years have taken this onboard. Unfortunately, it doesn’t look like they have.

Comments (14)

  1. bet you’d do the same, Sarah.

  2. Surely there must be a case for some form of Class Action against the dice rollers from both Lehman and Merrills ( as i write this one of my colleagues is saying that a variant of this will indeed be coming ) instigated by those investors who believe that things were seriously awry esp at Merrills.
    I can see the coming years being fun as we read of the excesses of the management as various trials / actions take place.
    Have to say that i dont know many at Lehman but am aware of many at Merrills and don’t trust them.

  3. So when the investment banking business is completely dead and buried, what will efinancial write about, who will be it’s target audience?

    ShortEfinancial Reply
  4. Yes, some Merrill / ex-lehman bankers can enjoy their good fortune now. But that is all it is – good fortune. Going forward into 2009 there won’t be so much deal activity / complex trading as there was during the boom. Expect, orderly. timely redundancies over this year from Bank of America and Nomura. The days of short term greed and long term hubris are over.

  5. yes, it’s over for the ones that just recently joined the city.

    those that brought it down, well, it doesn’t matter to them anymore,
    surely they already made enough to retire.

  6. I do not work for Nomura, nor do I work for BofA. In the case of BofA, I’ll presume that they had no control over ML bonuses. But Nomura showed an absolute lack of respect to their staff who worked hard to ensure they were in semi-stable waters during such a crisis. Why some Nomura staff should lose their jobs and bonuses, to appease ex-Lehman staff, it can’t be explained, it is very sad. And it is something that is completely out of place in the Japanese culture, after all, they are known for rewarding loyalty and hardwork. It really goes to show that the world of investment banking is generally immoral, and in fact, it justifies the selfish nature of bankers. That is why I’ll always work to line my pockets. I’ll never sacrifice my bonus and if a better opportunity were to arise that would boost my earnings and progress my career, I’ll would probably leave without handing in my notice, because I know I’m surrounded by a bunch of opportunistic crooks in suits and ties, who would defraud a beggar for his pennies if they had to.

  7. Dutch – dat is gelul! Good fortune is hardly an appropriate term for accelerating the normal comp cycle to pay for performance that wasn’t there. I suspect this is better termed as fraud & that may yet be proven as the case if they were insolvent.

    Sarah’s article (this time) is on the money. Merrill’s ppl are laughing at their good fortune & why wouldn’t they? Its as though they get to roll drunk out of one wrecked sport cars & then handed the keys to a new ride. Merrill always had a reputation for being fringe bulge bracket & a terrible place to be a client – more fool BOA for drinking from the poison chalice…

    Kharmascomingoneday Reply
  8. well written

  9. A lot of this has to do with ego. I suspect the Nomura executive committee got too excited at the prospect of a once-in-a-lifetime chance to join the big boys of investment banking and gain market share, prestige blah blah blah. In the process they stiffed their own people and burned their own culture in order to become something they are clearly not. Nor should they be. Nomura will learn the hard way of the results of a poorly conceived takeover just like DaimlerChrysler did……

  10. I have it on good authority Thain just got booted.

    Some justice after all…

    Kharmascomingoneday Reply
  11. The way I see things for Merrill is that BofA simply pre-agreed the amount of Merrill’s bonus pool and the date of pay outs at the time the purchase of M by BofA was negotiated, with no possibility to change this afterwards even though the market conditions would have further changed… Not necessarily a problem for BofA since the larger the disclosed liabilities are, the lesser the purchase price is… If they can demonstrate that the 3-4bn paid out were market conditions at the time of the deal, they might just escape unscathed.

    On the recently announced losses, it still need to be verified who among the Merill or BofA shareholders will incur them. If I rembember correctly, they have been announced just before the closing of the Merrill deal and I would not imagine in any case that the purchase agreement would not contain price adjustment clauses to cover such type of situation… (ok, there is still an issue if the losses are greater than the purchase price)

  12. learned my lessons in ibanking very early(after making a mistake);
    lesson 1: don’t trust anyone at work, client, etc.,
    lesson 2: you’re a star when things are great, when other screw up, you can pay for their mistakes and be sent home next day.
    lesson 3.: suck out as much money as you can out of your employer (see lesson 2 why)

    bigshotrussian Reply
  13. what is even more sickening is that Merrill paid out US3-4bn of bonuses despite a nice big loss for the year and receiving government bailout funds… what a beautiful world we live in…

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