Morning Coffee: When £250k is not enough for high-earning bankers. The power of banky thoughts

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Few people in the UK would lose much sleep about the financial woes of an investment banker hauling in £150k ($200k) a year. The average salary in London is, after all, just £34.5k and financial services pays more than pretty much every other sector. But bankers are subject the the same inflationary pressures as everyone else, and while their pay packets continue to shrink, their costs are still heading up.

As Financial News reports, City workers on six-figure salaries are feeling the squeeze. 40% of the people responding to its annual job satisfaction survey said that they earned more than £150k, but still felt that wasn't enough, while a third of people on £250k felt budgetary pressure. High-earners complaining about their finances tends to generate a lot of eye-rolling in the UK, but bankers - particularly older ones with school-age children - have to deal with high school fees (which are up 20% over the past five years) and often gargantuan mortgages. The solution, of course, would be to cut costs, but these sort of lifestyle perks are one of the reasons people stick around in high pressure jobs for so long.

Stagnant pay does no one any good, but there's one group particularly suffering within investment banks - VPs. The vice president rank is a tough one in investment banking. You're too far in to easily jump into another financial sector or vocation, but you're also in the middle of the hierarchy and career prospects slow down. It's harder than ever to make it to executive director or director level, and the jump to managing director is tougher still. Banks, though, also appear to be cracking down on pay for the mid-ranks more than anywhere else.

Financial News cites figures from compensation benchmarking website Emolument suggesting that pay has fallen by 5% for VPs since 2012. It may be much worse. As we reported earlier this year, average year on year compensation for VPs tumbled in 2016. Some banks gave moderate pay rises to their VPs, according to figures from recruiters Arkesden (which based its figures on candidates it placed), but others slashed bonuses, meaning total compensation was down by as much as £25k on 2016. Time to tighten the belts.

Separately, do bankers have a sense of professional responsibility, or are they all the "speculators and gamblers" Jeremy Corbyn would have you believe? Well, Matt Levine at BloombergView has uncovered an interesting piece of research by Ernst Fehr and Michel Marechal of the University of Zurich and Alain Cohn of the University of Michigan that says bankers are less likely to take big risks when you remind them of the fact that they work in banking. Get them to talk about themselves, and they're happy to gamble, but even then they're more responsibly than the other members of the public.

"They were given US $200 of which they could invest any amount in a risky asset which (i) paid back 2.5 times the investment with 50% probability or (ii) nothing with 50% probability. Participants knew these probabilities and were allowed to keep all the money they did not invest. We use the dollar amount invested in the risky asset as a proxy for participants’ willingness to take financial risks," said the research.

Some participants in the survey, all of which worked for "a large, international bank" were asked about random things like their "favorite leisure activity", while others were asked seven questions about their professional backgrounds. "We find that bank employees in the professional identity condition took significantly less risk. They invested about 20% less in the risky asset relative to the control group. Thus, the results do not confirm the widespread belief that the professional norms in the financial industry promote risk taking." it concluded.

Ah, you're thinking, but you could say that about any sector when you remind them of their professional duty. Actually, no. They tested "nonbanking employees recruited from the alumni network of an executive education program" and found no similar effect, says Levine. "If anything, the professional identity condition tends to increase risk-taking among non-banking employees," and the non-bankers took more risk to begin with. Another experiment with employees of a second big bank replicated the same effect as the first.

Meanwhile: 

How big banks are using ethereum to comply with MiFID II (Coindesk)

RBS has stopped cutting its compensation pool (Bloomberg)

Is Wall Street still prejudiced against LGBT people? (Institutional Investor)

The Qatar Investment Authority, the London Stock Exchange's largest shareholder, is throwing its weight behind LSE chairman Donald Brydon (Financial Times)

Hedge funds have realised robots are not that great (WSJ)

£30 an hour to relax, stroking a man's beard whilst shopping (MoBros)

Goldman Sachs has invited the Labour Party around for tea (Bloomberg)

Man flu is definitely a thing (The Register)

Have a tip, story or comment? Contact: pclarke@efinancialcareers.com

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