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Morning Coffee: Barclays’ banker with a $4m salary is safe for the moment. The big hedge fund where the drama is putting off candidates

There are a number of reasons why London bankers never got particularly excited about the post Brexit decision to remove the European regulation which capped bonuses at two times basic salary.  One of them is that it happened in 2023, a year in which bonuses of zero times basic salary were significantly more common.  And another is that some major employers like Barclays are keeping the cap anyway.

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The bank revealed this in its annual report, but it was confirmed in a letter sent yesterday to shareholders by Nigel Higgins, the Barclays chair. Higgins wrote that having kept the 2:1 ratio in place for 2023, Barclays' remuneration committee will contemplate lifting it in 2024.  But he says that “Whether or not the company changes the cap in the future, pay across the group will continue to be managed in line with Barclays’ remuneration philosophy, which includes a focus on rewarding sustainable performance”. 

The word “sustainable”, in context, usually means that there’s no enthusiasm for doing anything that will affect the group cost base too much; it might even imply that Barclays aims to manage the bonus pool to revenue ratio downward.  The policy doesn’t apply to members of the Group Executive Committee, but their compensation tends to be weighted much more heavily to long term and deferred awards, and is also subject to clawbacks which can be quite rigorously enforced. 

This shouldn’t come as too much of a surprise.  When the bonus cap was originally put in place, banks within its purview tried to keep their overall pay competitive by raising basic salaries. Some Barclays people are now on very high salaries as a result. 

According to the bank's most recent remuneration report, for example, there is someone there, outside the executive committee, who has been paid between €11m and €12m for each of the last three years. (Strictly speaking, it might not be the same person each year).  At the 2:1 ratio, that would mean that this person has a basic salary equivalent to about $4m.  That would be considered very high in places like the US and Asia, where the cap doesn’t apply and where compensation is still much more weighted toward its bonuses instead. If the bonus cap is lifted, Barclays' $4m salary would almost certainly disappear. 

Hypothetically, bonuses would rise to compensate. But maybe they won't. This is problematic because bankers have school fees, mortgages and other recurring expenses, and therefore value stability of a steady salary just like anyone else.  

Effectively, what a bank like Barclays needs to do is wait for inflation to erode the real value of the basic salary, and only then start reconsidering the cap.  So the $4m salary banker is unlikely to see much change in the near future – but at some point, when a pint of milk costs twice as much as it does today, they might be getting an $18m bonus rather than an $8m one.

Elsewhere, the long-running feud at hedge fund Two Sigma Investments is continuing to play out in public in ever-changing and more embarrassing ways.  John Overdeck and David Siegel still “disagree on the authorities, responsibilities and compensation for their own roles as well as a range of senior executives, including chief investment officers”, according to a regulatory filing.

Investors in the funds might take heart from the fact that Two Sigma is a quant fund and computers don’t have emotions, and they might be right to do so – Two Sigma's big funds are up a respectable three to six per cent so far this year, and a smaller macro fund is up 24%. 

But the human employees are increasingly giving up.  The head of investor relations is leaving next month, and one of the co-COOs is also leaving, after only having been in the job for nine months. The filing says that the feud is affecting Two Sigma’s “ability to retain and attract employees (including very senior employees)”; seemingly people just don’t want the drama.

Eventually something will crack; either one of the two founders will decide to get on with their life, or a crucial quant system will stop working and nobody will be able to agree on what to do with it because of internal politics.  This might all be a horrible real-time experiment in how long a quant fund can continue to run effectively on auto-pilot.

Meanwhile …

Susquehanna International Group has set up a trading desk for “event contracts”, which are apparently “binary options that can be used to bet on everything”, including monetary policy and Taylor Swift’s album sales.  This is a totally different thing from “a bookie” because it sounds nicer. And also presumably in some important regulatory ways too. (Bloomberg)

As the rumours and investigations start to build up around Sean “Diddy” Combs, a number of Wall Street figures who did business with him, got photographed with him or recorded 25 minute videos of their mentoring sessions with him may be wondering how and when to craft a “never really knew the guy” press release. (NY Post)

Have you ever slept in the spare room to give your partner a break from your snoring? Do you take measures to ensure they aren’t disturbed by your need to leave in time to make the morning meeting at 6:30 am?  This is apparently (and frighteningly) now known as a “sleep divorce” and it might be a way to avoid the real thing. (WSJ)

Relief for a few bars and restaurants in Canary Wharf, as Morgan Stanley has extended the lease on its offices there until 2038.  (Bloomberg)

Deutsche Bank will be providing “reset and recovery pods” (reclining chairs with cooling temperature controls and anti-migraine lighting) for menopausal women, people with autism and anyone else who needs a sensory reset.  They will be in the onsite wellness centre rather than at the edge of the trading floor. (Daily Telegraph)

Jain Global is still staffing up; this week it’s taken Amir Ravan from the precious metals trading operation at BlueCrest … (Bloomberg)

… and Jeff Bersh from Venor Capital to trade distressed debt (Business Insider)

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AUTHORDaniel Davies Insider Comment

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