Morning Coffee: No, no, Nomura does not pay better than Goldman Sachs. CFA Institute reminds you why you’re going to fail
In the same way that, “Minnesota isn’t a funky place” (except for Prince) or “Nebraska isn’t a financial centre” (except for Warren Buffet), there are some statements where the exceptions are more interesting than the general truth. And unfortunately for Nomura bankers, Christopher Willcox, the New York-based Briton who's head of 'trading and investment banking,' and who just got awarded $12m compensation for the last financial year, is likely to be one of those exceptions that prove the rule.
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It's a record pay package for Nomura, and a bit more than three times as much as the CEO got paid for the same period. It's significant firstly because Willcox has been delivering a massive and seemingly successful restructuring, combining a $100m cost cutting program with an upgrade and lots of hiring. And secondly because, although Willcox is widely described as a “British banker”, he’s working in New York where everyone gets paid a bit more.
Looking through the Material Risk Taker disclosures of Nomura Europe Holdings (on page 86 of this pdf file) probably gives a more representative picture of the kind of compensation environment that the average higher earning Nomura banker or trader is going into. Out of 309 material risk-takers, only 72 were paid more than $1m. This contrasts with the comparable operations of the bulge bracket in London; Goldman Sachs pays seven figures to 308 out of 569 MRTs, JPMorgan to 318 out of 494 and so on. Neil Willcox might be the all-time record holder at Nomura, but he would likely have at least half a dozen peers even at an overseas office of a US bank.
This award isn’t by any means meaningless – it was quite likely intended to send a message to the market that the egalitarian culture of Japanese banking doesn’t extend to the global investment banking operations, and that the CEO’s salary shouldn’t be seen as a ceiling on ambition either. But nor should it be seen as an indication that the crazy days of ten years ago are on the way back, the days in which Nomura really did seem to top the league tables of director and managing director pay in large-scale industry surveys.
Of course, comparatively few people are really in the kind of leagues where they need to judge potential employers on their ability to sign off eight figure packages. The majority of people joining Nomura over the last year, having been heading towards it because it’s been hiring during a quiet spell for recruitment. Most people don't want to know how high a bank will go, but how committed they are to maintaining employment and pay when the going gets tough. Here, Nomura's reputation is a bit more mixed.
Elsewhere, the latest CFA [tm] exam results have shown a slight increase in the pass rate to 46% for the Level 1 exam. But they have also demonstrated a pattern that first emerged last year and is well worth knowing about if you also want to get the coveted three letters and trademark sign on your business cards.
As the CFA Institute keeps pointing out, that 46% pass rate is an average; if you took out the candidates who had taken the option to defer their exam, it would have been close to pre-pandemic pass rates at 53%. Out of the group who delayed, only 27% passed.
The main reason for the difference appears to be that people who delay tend to assume that the revision they did in the weeks leading up to their initial exam date still counts as preparation for the deferred test. This just isn’t true – human memory doesn’t work like that and the Institute recommends that people just get realistic and treat their deferred paper as if it was a whole new exam.
It's also likely that in a number of cases, deferring the test is just fighting a single symptom of a bigger underlying problem. If you were just too busy with a deal to prepare for the exam six months ago, you’re likely to have another deal and be just as busy now. One of the harshest lessons of banking (and one that’s only partially covered in professional qualifications) is that putting something off almost always makes it worse.
Meanwhile …
It’s been a good week for Rich Handler. As well as coming out of the Archegos files looking extremely cool (“I’m going to get a margarita and I want the positions closed by the time I come back”), he’s able to announce results with investment banking revenues up 59%. He’s feeling “increasingly optimistic” about the second half of the year. (Bloomberg)
The logistics of doing a deal with US prosecutors while your residence status is “believed to be somewhere in China” must be tricky, but 1MDB’s Jho Low has handed over paintings by Monet and Andy Warhol to the DoJ, along with other assets. He still faces criminal charges in New York (NY Post)
“We have to keep our cool” during the summer of “heat on Wall Street”. Nobody wants to see any more Jonathan Kaye events, so Citi are advising staff “not to engage” with the climate activists who keep lining up outside their head office, apparently with the intention of physically preventing people from getting to their desks. (Bloomberg)
What do hedge funds like most about algorithmic trading? Surprisingly, it’s “ease of use” rather than anything more quantifiable. (The Trade)
Historically, hedge funds have had analysts to pick the stocks, and portfolio managers to make the trades and decide on the position sizes. A firm backed by the former CIO of Two Sigma is betting that you can replace the PMs with a computer and only have analysts. (Bloomberg)
Who was the trader who told Pawan Passi “I know who my daddy is”, a conversation which ended up with Morgan Stanley paying a $294m fine after a probe into Passi’s actions in running their block trading desk? A Nevada hedge fund is fingering one of its former employees, in what looks like a really bitter lawsuit over an unpaid bonus. (FT)
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