The great irony of the Brexit vote and this year's banking bonuses

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Oh, the timing. As we reported last week, this is the week in which several U.S. investment banks in London (and indeed everywhere) tell employees how much they will receive as a bonus for all their work in 2018. Morgan Stanley, Goldman Sachs and JPMorgan are expected to break the news in the next few days (Morgan Stanley may have done so already). Citi and Bank of America are due to follow tomorrow.

If you're senior in these banks, your bonus will easily be six figures and may well be seven, and some of this bonus will be paid in cash. In 2017, for example, Goldman Sachs paid the 535 material risk takers in its investment bank (as opposed to its asset management arm or control functions) around $100k each in unrestricted cash. The same year, Morgan Stanley paid 322 people in its institutional securities business an average of £118k ($151k) in cash bonuses. This year's bonuses will likely be equal, if not higher.

Unlike stock bonuses, which are typically tied up for three years, cash bonuses are accessible immediately they reach recipients' bank accounts. The only problem is that they typically don't reach recipients' bank accounts until mid-February. And rather a lot could happen in London between now and then...

In the very short term, there's today's vote on Theresa May's Brexit deal - due at 7pm this evening. If May loses by more than 100 votes, pundits are warning that it could be "negative" for the pound. If she loses by more than 200 votes, a general election and potential government led by left-leaning Jeremy Corbyn becomes likely. And under a Corbyn government, the pound is expected to fall to $1.15/$1.20 (down from $1.28 currently).

The danger, therefore is, that having had their bonuses announced this week, senior staff at U.S. banks in London could see them eroded by 11% (around £11k) in dollar terms by Brexit 'issues' before these bonuses are actually paid and can be converted out of sterling.

Alternatively, of course, Brexit could also mean the dollar value of London bankers' cash bonuses rises in the next month. Hedge fund manager Crispin Odey is now betting that Brexit's cancellation will trigger a 'monster rally' in sterling. U.S. bank employees waiting on cash bonuses need to hope he's right.

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