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Morning Coffee: About those gigantic bonuses at Jefferies… New Brexit disappointment for bankers in London

Jefferies bonuses

Jefferies hired a lot of people in 2017. Seems you should have been one of them…

Not only did the house of Handler add 121 people last year, but it paid extraordinarily well. Average compensation per head reached its highest level since 2008, at an average of $530k. That’s rather a lot more than Goldman Sachs, which was on track to pay $371k for 2017 at the end of the third quarter.

Jefferies’ big pay was fueled by Jefferies’ big profits, which reached $357m in 2017 versus just $15m a year earlier. Jefferies has successfully reinvented itself as an advisory house rather than a one-trick fixed income brokerage: it earned $1.8bn in advisory fees last year, compared to $617m in bond trading. As at other banks, fixed income revenues are going down; advising on M&A and capital markets deals is ascendant.

It’s not all jolly at Jefferies though. Those big bonuses come with punitive clawback conditions to dissuade people from leaving within three years. They also look a bit unaffordable. As Breaking Views points out, Jefferies has left the pay pack. Most banks now allocate 40% or less of their revenues to compensation; Jefferies has allocated 57%. This is nice for its staff, but not for its shareholders, who are nursing a return on equity of just 5.5% and a pre-tax profit margin of just 15.8%. If Jefferies just cut compensation to meet the 40% revenue ratio now used by Goldman Sachs, its pay per head would shrink to a more Goldmanesque $370k and its return on equity would be 12%. This is worth bearing in mind. After all, Lehman Brothers was notorious for paying enormous bonuses, and look where that got them.

Separately, Brexit won’t bring about a bonus resurgence in London. The EU’s top negotiator Michel Barnier has a message for any City bankers who were hoping to be free of the EU bonus cap, which restricts bonuses to two times salary (or 2.5 times in special circumstances): “Non.” Blame equivalence. If the UK wants to access Europe’s financial markets after Brexit, it will need to have exactly the same rules – bonus cap included. There had been hopes that the country might be able to negotiate a special agreement, but Barnier has now quashed them with his intransigence.

Meanwhile:

EU chief negotiator Michel Barnier explicitly ruled out a special deal for Britain’s financial services sector and said the decision to leave the EU single market rules out passporting arrangements. (Bloomberg) 

Blockchain excitement is the dotcom frenzy reborn. Rich Cigars, a cigar maker that trades on the over the counter market, jumped more than 2,000 per cent on a single day last week after changing its name to Intercontinental Technology and announcing an intention to enter the business of cryptocurrency mining. (Financial Times) 

Imprisoned Barclays trader has 14 days to pay $400k in confiscation fines relating to LIBOR. He earned $3m in 2007. (Bloomberg) 

Veteran hedge fund managers keep closing their funds. “They’re in a place in their lives in which they’ve accumulated a great deal of wealth — most of them are trying to figure out act two.” (Bloomberg) 

Hedge fund managers who donate to charity attract more AUM. (Bloomberg) 

BNP Paribas is moving 45 internal finance jobs from Paris to Lisbon. (Reuters)

ECM bankers’ egos validated: when top banker, Tom Boardman, left Barclays, the deal he was working on collapsed. (Financial News) 

Toys that teach your child to code. (New York Times) 

The best time to look for a job? A Tuesday morning in December. (BBC)


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