Morning Coffee: Bankers might be in denial about bonuses this year. A hedge fund which bullied CEOs is closing

As everyone knows, there is no such thing as a bad year in investment banking.  If you ask a banker in December how the previous twelve months have gone, you’ll get one of two answers.  Either “we delivered a load of revenue” or “the pipeline of future deals is fantastic”.  Depending on conditions, the bonus pool has to be set either to reward staff for the performance they’ve delivered in the past, or retain them for the bonanza to come in the future.

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This year is very much in the second category it appears.  Actual revenues are up modestly across the Street; according to Dealogic, the global fee pool is tracking to be up 24% on 2023, which was a cyclical low point.  But the eFinancialCareers bonus expectation survey has many teams looking for increases in the 35-45% range.  And the reasoning is pretty clear; 2025 is expected to be the year when private equity comes back, the “dry powder” gets ignited and another deals boom arrives. 

As everyone found out in 2021, there is nothing more frustrating than being caught short-handed and unable to execute all the deals that are available to be originated.  The argument for a strong 2024 bonus season for dealmakers is that banks which don’t pay out generously will be at risk of exactly that – losing people in Q1 of 2025, and then spending the rest of the year trying to hire them back at much higher cost.

That would suggest that the employees who will really be looked after this year are the Directors and Vice President ranks; the foot infantry who get transactions through the pipeline to “revenue close”.  There might not be quite so much tension in the labour market for MDs – that market has remained quite active for the last two years as second-tier and European firms have built out franchises by hiring from the bulge bracket. And the nature of a boom is that rainmakers aren’t quite so important when there’s an overall deluge of deals.

So are the most hopes right?  Is there no need for an “expectations management” exercise this year on the part of senior management?  Maybe …

It’s true that the banks that have been hiring senior MDs and building up their franchises would be very ill-advised to make false economies right now that could leave them unable to take advantage of opportunities.  But that would mean that the staff need to be kept happy, not ecstatic. 

The only thing that really raises bonuses across the industry is actual hiring activity, which is harder to see in Q1 2025.  Advisory team are more or less right-sized for a return to deal activity in line with the ten year average, and at present that is all that industry veterans like David Solomon of Goldman Sachs are prepared to commit to.  Since visibility for deals ready-to-go in January ought to be pretty good, we should probably regard anything better than that as hope and speculation rather than revenue within reach.  It feels like bankers ought to be thinking about the kind of compensation round that calls for champagne, but not vintage champagne.

Elsewhere, Bluebell Capital Partners has become the latest hedge fund to meet the unpleasant economic reality that even €200m is probably below the minimum efficient scale these days – once you’ve paid for compliance and legal costs, rented an office and given away a surprisingly high proportion of your 2-and-20 fees in either discounts or introduction commission, the profits left over compare pretty poorly to simply having a job and working for someone else.  Co-founder Marco Taricco also noted that “fundraising is bloody difficult”, as well as being time-consuming and taking the partners away from investing just at the time when performance is most critical.

Does this mean that CEOs no longer need to fear being pushed around by an activist fund which always seemed to pack a punch vastly out of proportion to its size?  Well, Taricco and his partner Giuseppe Bivona are unlikely to simply disappear. They’re shutting the fund to outside capital, but will continue to invest their own money, and they will still have the ear of big investors.  They are also unlikely to lose the capability which made Bluebell such a feared name in the first place; the fact that many of their activist recommendations were annoyingly correct.

Meanwhile …

Rates trading desks were expecting a bumper second half of the year due to political and economic volatility, but it seems that this has been offset by “spread compression” caused by too many big players wanting to defend market share. (IFR)

It is a sobering thought that if you have $1m in the bank then you are “rich” by any normal standards, but for the big private banking brands you’re merely at the borderline of “affluent” and barely worth taking an interest in … (WSJ)

… however, some prestigious hedge funds are beginning to value “mini-millionaires”, as they are “dumb money” that might not push too hard on fee rebates or be so quick with redemptions, and are deigning to “educate” the wealth management clients of some banks. (Bloomberg)

Marcus Chromik will succeed Olivier Vigneron as chief risk officer of Deutsche Bank.  It’s a sign of how far the Deutsche risk proposition has changed that although Chromik is a physics PhD, he’s not a markets quant by background – he joins from Commerzbank and was previously at Postbank. (WSJ)

It’s thirty years since the collapse of Barings Bank.  The rogue trader who was responsible for those losses, Nick Leeson, thinks that little has changed and that compliance is still something of an afterthought. (Bloomberg)

After the murder of UnitedHealth CEO Brian Thompson, other CEOs are taking precautions like buying a gun of their own and removing details from the company website. But most of them aren’t prepared to take on the lifestyle inconvenience associated with having a private security detail.  The exceptions are either those who like the drama and regard it as a status symbol, or crypto billionaires, who are at genuine risk of someone trying to capture them to extract the password that holds the key to huge amounts of undetectable wealth. (NY Post)

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