Morning Coffee: It’s a bad year for bonuses to be so big anyway. How to dress for your high profile hedge fund divorce
It seems the investment banking industry has forgotten that proverb about counting one’s chickens before they’ve hatched. Already, less than two weeks into the last quarter, we are all talking about record-breaking bonuses. After all, it’s not as if anything bad has ever happened to spoil the party in October, is it?
Even given the extremely strong performance of revenues for the year to date, and the fact that Q4 is traditionally the smallest contributor to the year’s earnings, we’d guess that top management will react to adverse events in the fourth quarter by engaging in some serious “expectations management”. It’s never healthy for bankers to be doing victory laps and acting like everything’s fantastic.
For one thing, it’s not necessarily a good time to have noticeable deep pockets, given the fiscal environment in a number of the world's largest financial centres. Several finance ministries are quite pointedly refusing to rule out special banking taxes, even if Jamie Dimon thinks they’re unfair. The political climate isn’t quite as hostile to bankers as it used to be – data centres and techbros have taken over as the main folk villains, but an article on bonuses in the Guardian last week is a reminder that hostility hasn't gone away. It seems foolhardy to talk too much about record bonuses, and remind the voters why they used to hate us.
You are also only as good as your last couple of trades. (On Wall Street, that is; in Silicon Valley venture capital you can spend your whole career talking about having been an early investor in Paypal or Facebook). Big IPOs are getting postponed and cancelled, bond yields are moving upward, and although the bull market is presently still charging, it would be a brave forecaster who claimed to be totally confident that things will be just as great or better twelve months from now.
Most bankers’ compensation packages contain a significant deferred component, much of which is tied to the stock price. This gets more true the further up the hierarchy you go. For bankers of Executive Director rank or above, the difference between a great and a mediocre year for the bonus pool can easily be outweighed by the difference between getting your equity-comp at an all-time low or an all-time high price. Consider Deutsche Bank employees, who had a quite miserable compensation round in 2021, but who might view it considerably more happily now that it turns out that long-term deferred equity from that year has gone up by nearly three times.
One thing which is likely to make the 2026 bonus round a bit nicer is that, for the first time in a while, there should at least be enough for everyone to get treated fairly. There won’t need to be any aggravating arguments about divisions between traders and bankers, and there’s no need to concentrate rewards on rainmakers; the poor old infantry who execute the transactions are just as necessary in conditions like this. The labour market is reasonably tight, and so there are good grounds for everyone to feel happy about their jobs. There’s just no need to shout about it.
Elsewhere, if you’re ever in the position of fighting a court case over the valuation of one of the world’s biggest quant funds, don’t forget your “red glasses, a cream blazer, blue plaid pants and gun-metal-colored woven leather heeled mules”. Or possibly “a gray-and-white striped jacket, white slacks and chunky blue heels”. If you’re a man, the look is apparently “navy-blue suit, light blue shirt and no tie”, although we’d guess you could get away with a Patagonia fleece vest if you went to court straight from the office.
It seems that one of the reasons that the finance press have decided to go all Fashion Week in describing John and Laura Overdeck’s outfits, as they cover the TwoSigma co-founder’s divorce case is that they’ve not got much else to write about. John Overdeck’s lawyers are trying to keep as many financial details out of the public filings as possible, in order to avoid revealing company secrets. Since one of the most important matters at issue is the actual value of the company – the two sides disagree by a factor of 50% on what the Overdeck stake is worth – this means that so far it’s purely a human interest story.
Meanwhile …
The promise of AI was that it could give every employee a dozen assistants. The reality of AI is that every employee feels like they’re now responsible for managing a dozen assistants. And this apparently involves carrying out constant performance reviews and improvement plans on the ones that aren’t working out. (Business Insider)
John Torgeby, the CEO of Sweden’s largest bank SEB, has resigned very suddenly indeed. It is apparently for personal and family reasons; analysts and investors seem to be saying that they are taking the company statement at face value. (Bloomberg)
Alternative careers for bankers – if you are already used to poor sleep, stress and constantly changing requirements, you can apparently earn $100,000 a trip by steering a boat through the Strait of Hormuz. If you’re not currently qualified to captain an oil tanker, there are apparently pretty good danger bonuses for crew as well. (FT)
Brevan Howard is not necessarily like other multi-strats; its top managers, including Fash Golchin, can be given proportionately very large allocations of its master fund’s capital. (Navnoor Bawa Resarch)
The Piper Sandler / Perella Weinberg deal might have kicked off a round of consolidation among the boutique investment bank sector. (Financial News)
As Paul Tudor Jones put it, “If I think about the end of my life and I look back, I’m not gonna be thinking about the ’87 crash or Bitcoin. I’m gonna be thinking about who I loved and who loved me” (Of Dollars and Data)
Obviously, Warren Buffett has more than earned the right to spend his retirement any way he likes, but there is something a little disappointing about learning that he mainly hangs around watching YouTube clips. (WSJ)
