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Morning Coffee: Banking MD’s $12m pay guarantee came with a nasty clause. Citi’s new executive is firing a lot of incumbents

An AI impression of Dean Decker when the clause was activated

It’s a shame that bankers’ gossipy nature tends to desert them when talking publicly about personnel matters, because it means that some of the most dramatic moments in the industry hardly ever see the light of day.  People write books about takeover battles and money-making trades, but for sheer soap opera and emotion, you can’t beat a really hotly contested recruitment drama like the one we’re currently getting a rare opportunity to marvel at, as it plays out in a Federal appeals court in California.

The bare facts of the matter are that back in 2017, Jefferies was trying to poach a real estate and casino coverage banker called Dean Decker from Credit Suisse.  Decker was clearly a high priority to recruit – Rich Handler himself was sending him text messages, and Jefferies was prepared to guarantee him $10m of total compensation for his first year and $2m for the second.  It all looked like it was going well and contracts were signed, but Jefferies was also trying to recruit Jonathan Moneypenny and his leveraged finance team. That deal fell through, and when it did, Decker also got cold feet.

When that sort of thing happens, hard feelings are inevitable. Several parties to the negotiation appear to believe that the then-Credit Suisse bankers had simply been using Jefferies to create “market data points” to renegotiate their pay.  (Decker claims that this hadn’t previously crossed his mind and that he was “really pissed” to find out that Moneypenny had allowed himself to be bid back).  Normally, this is part of the game – everyone hates it, and employers bear grudges, but there’s generally assumed to be not much that can be done.

Except that Ben Lorello (at the time, Jefferies’ head of investment banking) had got tired of bankers playing these games, and had started to include “break clauses” in his offer letters, like the ones that you regularly get in merger agreements.  In this case, Jefferies ended up sending Decker a bill for $4m, as agreed.

At this point, things become difficult to understand.  One of the reasons that there's so much skullduggery in banker recruitment is that it’s covered by labour law rather than securities law. That means that it’s much more difficult to enforce a contract.  Lorello’s recruiter described the break-clauses as unlikely to be enforceable “in most states (if anywhere)”, and California labour law is usually considered to be quite employee-friendly.

And yet, financial industry cases usually go to arbitration, and arbitrators often look quite balefully on people whose word isn’t their bond.  Decker lost at the arbitration panel, and Credit Suisse agreed to pick up his legal bills to appeal (which means that UBS is currently paying them).  When the appeal court decides, it’s likely to set some important precedents.

Meanwhile, both Decker and Moneypenny are now working for Santander, presumably having got over whatever awkwardness was created all those years ago.  And Jefferies has continued to recruit lots of Managing Directors in the following years.  The lesson seems to be that if you’re going to move, move and if you want to stay, stay.  Trying to be clever and get yourself bid back is a game you can usually only play once, and there’s a high risk of it ending in tears.

Elsewhere, people with the skill of reading between the lines wouldn’t have had much trouble interpreting Citi CEO Jane Fraser’s comments when she hired Andy Seig last year from BoA.  “Growing wealth is a core pillar of our strategy”, she said, followed by “In my conversations with Andy, it is clear to him that our team is on a mission to transform Citi — and he is highly driven and motivated”.

In context, that sounded at the time like a warning that client asset growth wasn’t good enough, and that people who weren’t generating new accounts were at risk of being fired.  CFO Mark Mason put it plainly on the earnings call; “There will be a need for us to continue to invest and replenish low-performing or low-producing bankers and advisors with resources that actually can generate the revenues we expect”. So far, eleven senior executives have left the wealth management unit since Sieg arrived, with only one departure a retirement. 

Meanwhile …

Jane Street’s revenues for Q1 appear to have doubled on last year, now standing at $4.4bn.  This is close to the trading profit of some bulge bracket banks; it looks like one of BoA, Citi or Morgan Stanley may be quite close to getting the “reverse bragging rights” of being the first Wall Street incumbent to be overtaken by Jane Street. (FT)

It’s really not so long ago that star equity analysts in China were being offered the equivalent of $1m salaries.  Those days may be gone for quite some time; it’s more likely to hear about local brokerages cutting travel and meal allowances as they lay people off. (Bloomberg)

“I am neither hero nor villain”.  As Neil Woodford starts a new career as a pundit and influencer, former investors might half agree with him. (Financial News)

German electrician Cagdas Halicilar is a professional Jeff Bezos lookalike.  In case you’re wondering how many events really want to hire a Jeff Bezos lookalike, it seems that isn’t his only job, and he claims that the resemblance has helped him to set up an entrepreneurial business of his own.  (NY Post)

After recent press stories, when a senior woman leaves Goldman Sachs these days they need to make it clear that they’re just leaving, rather than being an example of a greater trend.  Stephanie Darling, one of the team behind Marquee, is retiring and moving to an “advisory director” role, and she suggests that the main reason senior women leave Goldman is because the rest of the Street “wants to cultivate and access this amazing talent” (Fortune)

Houlihan Loukey is parking a few of its chariots on Lazard’s lawn – it’s hired David-Alexandre Gadmer to set up a new sovereign advisory practice in its restructuring division. (Financial News)

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AUTHORDaniel Davies Insider Comment

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