The investment banking industry is afflicted by a bout of malingering. Where senior people in the industry could once be relied upon to go quietly, they’re suddenly clinging on with their fingernails.
“People are holding onto their seats for dear life,” says one London headhunter who works with MDs and heads of division. “Almost all the people we talk to would love to retire if given the chance, but it’s not that simple.”
Love of the job is not the precondition for their continuation. “80% of senior people in banking hate what they do,” says Victoria Macpherson, a former banker and headhunter who coaches people in the industry. “Banking is no fun any more. There’s an awful lot of bureaucracy and not much creativity. And the pay is less.”
Why won’t these MDs desist and voluntarily make way for the younger, cheaper, fresher generation below them? We asked a selection of current and ex-MDs and headhunters. This is what they said.
The people who really ought to leave banking now aren’t the people who were promoted in the years since 2010 but the people who were promoted in the years immediately before the financial crisis. These are the people who are rich as Croesus. As at Goldman Sachs, these are also the people who are typically running the banks – and they seemingly have no intention of going anywhere.
Goldman insiders say there are three strata of partner managing directors (PMDs) at the firm: the pre-2008 generation who have made enough to ensure that multiple generations of their families never have to work again, the 2010 generation who could just about retire and live frugally whilst providing for their children, and the partners promoted since then who have big mortgages and growing families and at least a decade to go before they can get out comfortably.
Once, managing directors who participated in nefarious 'tax efficient' schemes were able to receive their bonuses tax-free. These schemes have now been rightly closed, with the result that a high six-figure or seven-figure package doesn't go as far as it did. A £350k salary before tax amounts to £16k a month after tax. This is a lot, but can be dissipated in big mortgages, big school fees, and big holidays.
As a result, it's not uncommon for people in finance to have large loans to fill the gap - usually from their employers. UBS's 2015 remuneration report revealed that Ulrich Körner, president of its EMEA asset management division, has taken out CHF10m in loans from the Swiss bank, for example.
Macpherson says a lot of senior bankers spend a lot of their incomes: “When you’re working that hard in a role you don’t necessarily enjoy, it’s the expensive holidays and the lifestyle that keeps you going. Otherwise, why bother?”
Children are also to blame. Another headhunter who places senior bankers points out that most are in their 40s, with the oldest in their early 50s. These are not people who’ve launched their children into the world. Far from it.
“Most of these people still have young kids,” he says. “At best, they might have kids at college. They’ve still got all those expenses – and then there’s the need to sort your children out with a deposit if they ever want to buy a house in London.”
“People need to put their kids through university and buy them a house,” says Steven Goldstein, an ex-Credit Suisse trader and trading coach. “It’s a lot more expensive than it used to be.”
Unless you work for Jefferies, there’s no such thing as a cash bonus. Deutsche Bank now defers its bonuses over four years, with bonuses vesting equally over that period, UBS defers bonuses over five years, plus a six month withholding period.
Not only are bonuses more heavily deferred, but those deferrals are worth less. In 2008, the S&P Financials Index fell by 84% and the Stoxx Index of Europe's 600 biggest banks fell by 77%. If you held a lot of bank stock you were wiped out and needed to carry on working to recover that lost wealth. The S&P Financials Index has since rebounded to 44% of its pre-crisis value, but the Stoxx is still close to its all-time low. Since January, Credit Suisse's shares have fallen 32%.
Under new rules, the Bank of England is able to claw-back bonuses for up to seven years - even if those bonuses have already been spent. What if you leave in the expectation that you will have an income as your bonuses vest over the next five years, only to find that they’re taken from you when nefarious goings-on beyond your control are unearthed in your former department?
Mostly though, there’s the fear that a lifetime’s accumulation of financial services expertise will become irrelevant outside banking.
“These are very clever, very well-trained people,” says Macpherson. “It’s often not clear what else there is for them – a lot of people want to move to the buy-side or the fintech, but that’s not easy.”
In the meantime, any indication of waning interest in work is a death knell - not necessarily for your job, but for your earning power. “If you put your hand up for retirement, there’s always a risk you’ll be refused but that next year your bonus will be zeroed because they know you want to leave,” says one headhunter. “This is a cut-throat industry. Never forget that.”
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