Morning Coffee: Credit Suisse bonuses above $250k come with a catch. Bank of America and Citi show us where the remaining hiring hotspots are

Most of the time, the head office of an investment bank doesn’t have much in common with the galley of a battleship.  However, at certain points in the cycle, both CEOs and naval cooks are faced with the challenge of taking a barely adequate mess of resources, and trying to turn them into something sufficiently palatable to ward off the risk of mutiny. 

Credit Suisse is at just such a point right now – the revenues might not justify a pool bigger than half last year’s level but the market for talent is not yet in a place where you can give people a token bonus and tell them to be grateful they still have a job.  They need to find “the right balance between the interests of our employees and those of key stakeholders, including our shareholders and regulators”.

That phrase comes from an internal memo which has been seen by Bloomberg and Financial News, among others.  It explains that CS is planning to make a similar compromise between retention and expense to the one it made last year.  If you’re in line for more than $250k in total compensation (basically all MDs and Directors, even in back- and mid-office jobs), then the deal is that you will get a significant proportion of the bonus in cash, paid up front, in return for signing a three-year clawback deal.  The deadline to do so is 30 January, with bonuses to be announced shortly after.

The economic benefit of this sort of structure is that the upfront cash allows bankers with expensive lifestyles to continue to sustain them, but the clawback means that only a third of the payment hits this year’s accounts, saving costs and regulatory capital.  Under IFRS accounting, deferred compensation isn’t recognized until it’s irrevocably the property of the employee, even if the actual cash is available for them to spend.  The rest of the compensation will be paid in “phantom stock units”, with a normal vesting period.

Despite this rather clever structure, last year’s version was surprisingly unpopular with people on the receiving end.  The clawback makes it significantly more expensive to move jobs, as it has to be added on to the normal buyout of deferred stock units.  It’s even more of a burden if the scheme makes you pay back the full gross amount and then claim back the tax yourself, as Jefferies has historically done and Credit Suisse apparently did with similar bonuses in 2022.  According to Financial News, however, this year’s CS scheme is “net of tax” and has been “simplified” after feedback last year.  The clawback will also work proportionately on a monthly basis, rather than requiring bankers to reach an anniversary to have the amount reduced.

Will it work? It might be thought that if the bonuses are so small, it hardly matters how they’re structured.  But although the overall pool is likely to be a lot lower, Credit Suisse may choose to concentrate it on people it really wants to keep.  Many of them will also have retention payments made last year which will be subject to their own clawbacks, and others might have an eye on the “partnership” rewards potentially available in the spin-out of First Boston.  It might be the case that some senior bankers will decide to stick around simply because negotiating a buyout deal with another employer is too complicated.

Elsewhere, an outline of the current state of the banking labour market can be seen by looking at the “buts” in recent announcements.  Bank of America is implementing a hiring freeze … but it will still continue to fill “vital roles” in “units that have seen revenue growth”, and these apparently include wealth management, trading and “technology jobs”.  Similarly, everyone is talking about pay cuts … but Citi is going to increase base salaries for Associates and Vice Presidents by 10-15%.

To a certain extent, both of these moves can be seen as course corrections.  Bank of America has already said that it had got a bit ahead of plan with hiring last year and had been surprised by a lower level of staff exits as part of the normal churn.  And Citi was widely perceived to be paying below the Street for junior bankers, many of whom disagreed that they were getting quality-of-life benefits to offset the difference.

But that itself is an indication of the state we’re in.  Although revenue conditions are still tough, not many banks are seriously considering major strategic change; they’re trimming here and there to respond to conditions.  For the right people in the right place with good performance to talk about, the labour market is still pretty good.

Meanwhile …

The position of Chief Compliance Officer at Deutsche Bank isn’t quite as adventurous a career move as it used to be, but Laura Padovani still intends to help the team in “reaching the next level” as she moves from Barclays. (Financial News)

Fintech marketing executive Heather Morgan has a new job, but won’t be subject to any corporate remote working policies.  That’s because she’s currently under house arrest; in her alternate identity as cryptocurrency rapper “Razzlekhan” she’s awaiting trial on charges of attempting to launder $4.5bn of stolen Bitcoin. (Bloomberg)

Given that Morgan Stanley now seems to have been installed as the bank that all others want to emulate, what does that mean for UBS, given that its chairman Colm Kelleher probably has more Morgan Stanley DNA in him than all but a dozen currently living bankers? (Finews)

Sam Bankman-Fried’s new Substack demonstrates his heritage as a former trader at Jane Street, where everyone knows how to code and nobody uses Excel.  His embedded spreadsheets are terrible. (Substack)

Former Goldman and Morgan Stanley banker Paul Howard has left BlockFi for Standard Chartered, but this is a move within the crypto space rather than part of the “back to banking” trade; he’s going to be head of sales for Zodia Markets, SC’s crypto subsidiary. (Financial News)

Aaron Tai has gone from Cornwall Capital to Elliott Investment Management, reflecting a growing interest in building up activist investment in Japan. (Bloomberg)

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