Why Jefferies' bankers don't mind the curious share price gyrations
It's been an interesting month or so for shareholders at Jefferies. First, the bank's share price fell 24% between 17th September and 10th October over concerns about its exposure to First Brands. Then it gyrated and recovered some ground. But this week, it's fallen again, including a brief but mysterious 13% fall before the market opened on Thursday.
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At other banks, this might have managing directors (MDs) rushing to recalibrate their net worth. At Jefferies, this is not so. Even MDs who've worked there for decades tell us they have no stock. Many were not even aware of this week's price gyrations,
That's a stark contrast to other banks, where employees take a keen interest in the implications of share price changes for their bonuses which are held in deferred stock. At Deutsche Bank and Morgan Stanley, for example, where shares are up 44% and 32% since the start of the year, the rising share price was cited as a source of higher compensation costs in the third quarter, as previously issued stock bonuses vested.
At Jefferies, it's not like this. People there don't seem to mind much that the stock price has fallen 32% since January. This is because their bonuses have historically been paid in cash.
Jefferies' cash bonuses have been a phenomenon since at least 2017. Instead of paying 30%+ of senior staff's bonuses in stock, the bank has paid entirely in cash which it's clawed back, plus income tax, if people leave.
The rules used to be that anyone who left Jefferies within 12 months of receiving a bonus had to repay 100% of the cash (plus tax); that anyone leaving within 25 months had to repay 50% on the same basis; and that anyone leaving within 36 months had to repay 25%.
Jefferies tweaked this arrangement last year, when it started paying stock bonuses to some senior people, but many don't seem to have got the message. A regulatory filing says that the bank's non-managerial material risk-takers in London received only £6.6m of deferred bonuses in stock last year.
That's good news for them. It may be less good news for Jefferies' other shareholders, who own a bank where employee interests are less aligned with their own than is the norm elsewhere now.
Jefferies declined to comment on this week's pre-market fall. The bank said previously that its financial condition is sound and that any losses related to First Brands can be easily absorbed.
Jefferies' people may be less impressed when they receive bonuses for this year. The bank said in August that it's moving to a more collaborative way of paying people, instead of offering percentage payouts for individual pnl. This suggests bonuses will be more discretionary, which leaves greater room for cuts when shareholders are questioning what's going on there.
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