Morning Coffee: Barclays goes for big bonuses but maybe only to a privileged few. Intern party season is out of control this year

Taking advantage of the post-Brexit change in the regulations, Barclays has now followed the big US banks in removing the cap on bonuses at two times fixed salary.  An internal memo, confirmed by the company, has raised the maximum ratio to ten times base.  That’s the same as JP Morgan and it seems that this might be the new standard for the London market (Goldman Sachs has indicated that in principle it could be prepared to go as high as 25x, but this is more likely to be applicable to transferred MDs on US contracts with very low base salaries).

This doesn’t necessarily mean that any big transformation in compensation culture is on the way.  Employees of Barclays’ Irish subsidiary (which is to say, all of them in Europe outside the UK) are still covered by the EU rules.  And the company has confirmed that “the revised bonus cap will not alter the way Barclays sets its incentive pool, which is based on overall Group performance”.

So why do it?  Apparently, because “It will allow us greater flexibility to differentiate individual bonuses within a small and defined group of colleagues”.  That phrase might raise a few hairs among Barclays’ staff, as the word “differentiate” is often used by investment bank managers to describe a situation in which there isn’t enough money to keep everyone happy, so the bonus pool gets concentrated on the real rainmakers that they can’t afford to lose.

It's a bit early in the year to be giving warnings like that, however, and if it’s true that the pool is based on overall Group performance, then Barclays bankers might think they had reasonable grounds for optimism – at the half year, earnings were up and the return on equity was a respectable 9.6%. 

But the actual investment banking performance wasn’t quite so good.  Fixed income trading revenues were significantly worse than the Street (due to a one-off gain last year and a business mix heavy in macro products, which might do better in the second half).  And M&A revenues seem to have suffered relative to competitors, possibly due to a lack of hiring.

Which might be another explanation for the decision.  Cathal Deasy and Taylor Wright still have to deliver their share of the overall $600m cost-cutting target for the group this year, but the franchise needs to be shored up with some revenue generators.  One way of squaring that circle might be to offer some slightly more aggressively-geared performance related packages to proven rainmakers, on the basis that if they work out then they’ll be cheap at the price, while if they don’t it will be a relatively cheap experiment.

Elsewhere, one reason why investment banks like to make their younger staff work hard is that “the devil finds work for idle hands”.  Junior bankers with too much time on their hands can get into all sorts of trouble, causing reputational problems for the firm and disciplinary problems for themselves.  And it seems that this point is being proven by the summer intern class of ’24. There aren’t so many deals this summer as in previous years, and many banks’ human resources departments have imposed tighter controls on hours, so “nobody is working more than twelve hours a day”.

That means that party night is happening four or five nights a week, rather than two or three, according to people who wisely refused to give their names to the New York Post. A stretch of bars on the Lower East Side have been designated “intern row”, and allegedly one intern has already caused $50,000 of damage to a hotel by passing out on the shower drain. 

According to the same source, the interns are also choosing to hook up with full-time employees rather than each other.  This is considered to be more prestigious, also their housing situation is likely to be better and they’re not rivals for job offers. 

Although this, in and of itself, casts doubt on the accuracy of the sources. The days are long since gone when any banker in their right mind would see a relationship with an intern as anything other than career Kryptonite.  Perhaps we’re not getting so much the revival of good times on Wall Street, as someone with a rich fantasy life and a box-set of “Industry”.

Meanwhile …

Fund management groups are in an “arms race” for private markets expertise, according to the CEO of Schroders.  He thinks that capability in this area is an “existential” requirement for the employers, and that this is driving consolidation in the industry as big players buy the talent they can’t quickly hire. (Financial News)

One reason why asset managers are having trouble getting this talent is that the sell-side continues to drive demand in the labour market – for example, Lazard has hired Courtney Haydon from Guggenheim to keep its own private equity dealmaking franchise growing. (Reuters)

Short-selling specialists are worrying that the case brought by the SEC against Andrew Left might end up creating de facto standards forbidding them from trading in advance of publishing reports.  This would more or less destroy the “activist short” model, to the joy of a lot of questionable companies. (Institutional Investor)

If, like some interns quoted in the New York Times, you have a vivid imagination and a basic grasp of financial jargon, then you might be interested in learning how Konrad Kay and Mickey Down managed to create “Industry” after being let go from Morgan Stanley, with no experience of TV drama. (Movie Maker)

Houlihan Loukey’s acquisition of insurance and wealth management boutique Waller Helms looks like a real “money where your mouth is” moment in terms of their commitment to reaching super-boutique status, as well as a vote of confidence in the immediate revenue outlook. (Financial News)

A useful newly coined word – “ill-ish” describes the feeling of being not so sick that you can really take a day off work, but sick enough that you don’t want to come into the office.  Unfortunately, people working from home while ill-ish are quite likely to be delaying their recovery to full capacity. (FT)