Is there no fairness in this world? Yesterday, Barclays' investment bank announced some very healthy results, including a 14% increase in full year profits, but its London bankers are complaining of being stiffed at bonus time. UBS, meanwhile, revealed a 47% reduction in the profitability of its investment bank last year, and people there are said to be happy. The same goes for bankers at Credit Suisse, whose markets division turned an almost imperceptible profit of CHF48m, but somehow kept its staff feeling loved.
The problem seems to be one of expectations. Credit Suisse and UBS bankers weren't particularly expecting a rub-down at bonus time, and so were pleasantly surprised when the bank massaged their shoulders. Barclays' bankers, however, were all excited about Jes Staley's potential to set their worlds alight with J.P. Morgan-style payouts after his first full year as CEO, and so were saddened when Jes paid just like predecessor Antony Jenkins.
As we reported yesterday, it's not even that Barclays' bonus pool is down a lot. The British bank has stopped breaking out bonuses for its investment bank as a whole, but it did break out the size of the bonus pool for the front office alone. This was down just 1% at £875m ($1.1bn). Barclays also scrapped 100% bonus deferrals for its managing directors (MDs). So what's not to like?
A lot, it seems. Because profits were up 14% and because Jes is there, Barclays' bankers were expecting the bonus pool to be up by more than that single digit. And while the deferral change was a good thing, it was accompanied by a move to spread payments over three to five years instead of the previous three, so it wasn't without its downsides.
Most importantly, though, it seems Barclays has allocated its £875m front office bonus pool on a highly differentiated basis. There are some big haves and some big have-nots, and the have-nots are predictably unhappy.
The haves appear to be in the Americas and on the credit desk. This is well-deserved: Barclays' credit traders achieved a 44% increase in revenues last year. If you're in with head of credit trading Adeel Khan, you'll be in the money. Even so, you won't be in the money to the tune of the 44% revenue increase - headhunters say Barclays' credit bonuses are up by around 12% on 2015 and this too is understood to be causing some complaints.
The have-nots appear, loosely, to be in the UK investment banking division and in the mid-to-senior ranks of legacy staff at Barclays in London. Barclays said yesterday that 63% of its people earning more than £1m were in the U.S. This proportion is up a lot on previous years: in 2014, 54% of Barclays' millionaires were in the U.S; in 2015, 55% were. This year, Barclays' London bankers therefore seem to be losing out to their colleagues on Wall Street - helped along by the 7% decline in the pound against the dollar. "Bonuses in Barclays' London investment banking business seem to be down 10-15%," says one headhunter. "And they're down in areas where people didn't do too badly."
The aggrieved bankers at Barclays in London are, predictably, casting dark glances at the bank's expensive hires from J.P. Morgan who are thought to have garnered their bonus pool. They're also looking at some of the people former head of the Americas, Skip McGee, hired in 2014 - possibly on large multi-year guarantees. .
As far as the J.P. Morgan hires goes, this may not be entirely fair. Barclays' Pillar 3 report, released yesterday, shows that the bank gave 15 people sign-on awards totaling £16m last year - hardly enough to make an impression on the £875m bonus pool. It's not clear, however, whether this also includes the cost of buying out their J.P. Morgan stock.
It's also possible that the complaints at Barclays are unfair overall. They may simply be the result of a minority of unhappy London bankers throwing their toys out of their prams. As the chart below shows, average total compensation for the bank's 1,500 material risk takers barely changed for 2016. However, the compensation structure became far more appealing for Barclays' employees. Last year, for example, the average cash bonus paid at Barclays was £39k. This year, the comparable figure is £103k; average deferred bonuses paid within 12 months rose similarly, from £31k to £95k.
Maybe Barclays' London bankers should cheer up a bit? - At least next time they'll be under no illusions about Jes Staley's approach to the bonus round. UBS and Credit Suisse, meanwhile, may have raised the bar for payments in future. The Swiss banks have had payment issues in the past, but are said by headhunters to have paid their London people, "flat to marginally up," this year. In January, Credit Suisse CEO Tidjane Thiam promised that this year's bonuses at the Swiss bank would be ok. - CS bankers may hold him to that again next year.