Jefferies has contracts and it's not afraid to use them. Such is the conclusion to be drawn from the bank's latest U.S. legal wranglings and existing clawback policies. Before you join Jefferies, you might want to get lawyered-up.
In particular, you might want to get a lawyer to pay some very careful attention to the contract you're signing. Five New York-based Credit Suisse debt capital markets bankers, including veteran lev fin banker Jonathan Moneypenny, co-head of lev fin origination and restructuring, Jeb Slowik, Credit Suisse's top gaming banker, Dean Decker, and two of Decker's team, all signed contracts to join Jefferies late last year. Jefferies' even announced some of their arrivals. Now they've had second thoughts and are staying at Credit Suisse instead. In a fit of Trumpish petulance, Bloomberg says Jefferies is going after the bankers personally for damages totaling $10m.
Sounds bad? It's not the only instance of Jefferies' willingness to flex its contractual muscles. The small U.S. investment bank is renowned for paying all cash bonuses, with a catch: if you leave, you have to pay them back.
London headhunters say Jefferies' bonus clawbacks are made particularly painful by its requirement that the bonuses are repaid gross: departing employees have to pay back their bonus, plus all the income tax that was levied on it months before. Leavers then have to reclaim this tax themselves later from the British government. If you leave Jefferies within 12 months of taking delivery of your bonus, you have to pay 100% of the gross amount back. Within 25 months, you have to pay back 50%. Within 36 months, 25%. Incomes above £150k ($189k) are taxed at 45% in the UK, meaning that an MD who received a $300k bonus could easily find himself having to give Jefferies $135k in cash simply in order to move on.
"Unlike some banks, Jefferies is known to enforce its clawbacks. It makes it very tricky to move people out of there at VP level and above," says one headhunter.
Last year 17 people left Jefferies' London office for other firms, according to the Financial Conduct Authority (FCA) Register. This puts Jefferies' voluntary turnover at around 4%, which is considerably below the figures of between 7% and 9% for rival banks cited in last week's report from Quinlan Associates. The bank seems understandably keener to keep its fee-earning senior staff on lock-down than its juniors. One former Jefferies' associate who left in 2016 says the bank was totally cool with him quitting and that he wasn't subject to any bonus clawbacks ("Maybe this is because my bonus wasn't very meaningful."). Headhunters say this might also be because the clawbacks only usually apply at VP level and above.
Meanwhile, U.S., employment lawyers described the contract between the Jefferies and the stubborn Credit Suisse bankers as "aggressive" and "unusual." The five men are undoubtedly hoping that Credit Suisse - which likely offered them retention bonuses to stay on - will also cover the cost of the $10m in penalties if Jefferies' court case is successful.
Jefferies' possessiveness and preference for career monogamists is notable given the bank's sudden eagerness for hiring senior staff from elsewhere: it's already added two U.S. investment banking MDs this year. If you're thinking of joining the U.S. bank, you might want to look before you leap. There's no going back, especially as headhunters say the bank's bonus policy has a predictable downside: "A lot of people at Jefferies are unhappy, but it's hard for them to leave, because no one wants to buyout their bonuses and compensate for all the income tax."