Morning Coffee: Cruel disappointment for bankers briefly hopeful about bonuses. Goldman Sachs bankers to be spared ice bath humiliation
As the saying goes, you can always take a bit more despair – it’s the hope that kills you. That’s certainly how equity capital markets bankers are likely to be feeling. After a brief period of joy surrounding the ARM and Instacart IPOs, the market seems to have crunched shut again, and the fourth quarter is expected to be “a little bit weaker” than the run rate for the year, according to Bloomberg Intelligence.
The aggravating thing is that ECM teams can at least say that their revenues are up on last year, something which M&A bankers certainly can’t. In some firms, the equity capital markets teams will be the undoubted stars in revenue growth terms – across the top eight banks, the total fee pool was up 13% for the first nine months, but Goldman Sachs, for example, delivered $901m of equity underwriting revenue, up 42% on 2022.
But there are two big problems which mean that this isn’t likely to translate into bonus payments. First, the growth this year is against an extremely easy base for comparison – 2022 was the worst year since the early 2000s. Although it’s up on last year, 2023 revenue is tracking to still be down more than 50% versus 2021; that's not going to bring bonuses to respectable levels.
But more fundamentally, as any banker who has been through a few cycles will tell you, the size of the pie matters much more than the angle of the slice. It is much better to have an average year when everyone is doing well, than a fantastic year when everyone is doing badly. Even the bankers who landed the few big deals of the year will be aware that there are other claims on the fee income they generated. Even if they could prevent revenues from being shared out between pools at the compensation committee, CEOs have shareholders to deal with, and cutting costs is now the only way to keep earnings in touch with consensus estimates. So even rainmakers may end up suffering the indignity of a bonus that’s no more than twice their base salary.
Consequently, even if a big deal were to come along tomorrow, a smart banker would do their best to delay. There’s simply no point in throwing good business into a bonus year that can’t be saved – it might be better to push it into January or February when the next round of “performance related” layoffs is being decided. So capital markets guys, like the rest of the industry, are going to go into the holiday season with their hopes thoroughly dashed...
Separately, in these sorts of conditions, when other forms of joy are so difficult to find, schadenfreude becomes much more important. So bankers should at least console themselves with the knowledge that they won’t have to deal with WeWork any more.
In fact, there’s potentially a whole rogues gallery of late 2010s and pandemic era founder-celebrities who won’t need to be tolerated or listened to for a whole interest rate cycle. It’s not exactly worth missing a bonus or getting laid off, but not having to dress up in yoga pants or moonlight as an Uber driver or put up with Elon Musk is a considerable psychological benefit.
And although founder Adam Neumann hasn’t been associated with WeWork for some time, we guess that former Goldman MD Srujan Linga will be permitting himself a smirk at the news of its bankruptcy filing. According to a book about the WeWork rise and fall, Linga once bet Neumann that he could sit in an ice bath for longer than five minutes (Neumann had claimed this was impossible).
In fact, Srujan Linga managed ten minutes, and yet still didn’t get the piece of debt business that he was pitching for. This sort of behaviour used to be distressingly common in the days when cheap money was abundant, and it’s nice to think that people wanting banking services might be more inclined to ask politely for a while.
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Meanwhile …
Of course, it’s not going to be bad bonus news for absolutely everyone – these are the times when restructuring and bankruptcy specialists are in demand. (FT)
Mike Mayo has decided to go against the grain rather than trying to ingratiate himself with the new team at Morgan Stanley. The notoriously ornery Wells Fargo analyst has said that the $20m bonuses paid to Andy Saperstein and Dan Simkowitz “raises a question about whether they are staying more due to comp than culture”. Luckily, senior bankers are notoriously chill about discussing details of their personal compensation, so it shouldn’t affect his management access going forward. (Bloomberg)
Citadel’s massive shower of perks and treats doesn’t stop when the internship finishes – the six week training program for new graduate hires is also full of fireside chats with Ken and delicious catered meals. They also play poker against the trading desk after the market closes, which sounds like it might get expensive. (Business Insider)
Usually the rank above “Vice President” is “Director”, but not for Milojko “Mickey” Spajic. He spent three years on distressed credit research at Goldman Sachs, before leaving for a hedge fund in Singapore and he’s now, at the age of 36, Prime Minister of Montenegro. (Bloomberg)
Another former credit analyst making a career change – Jonathan Recanati was advised by everyone who knew him at Deutsche Bank not to go into the restaurant business. And although he’s developed a successful chain of “Farmer J” healthy lunch places, he basically agrees – his advice to anyone thinking of leaving a secure job for the hospitality trade is “don’t”. (CityAM)
One thing that crypto bros appear to have in common with traditional finance bros is a taste for wearing the swag of bankrupt or defunct firms, in order to demonstrate how experienced you are. (Bloomberg)
… although, given the circumstances of its closing, people might not be so keen to bid on eBay for Odey Asset Management baseball caps and luggage. (FT)
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