Late Lunchtime Links: 3 implications of the failed EU fund manager bonus cap

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For investment banks, there is no going back.  The European Union's bonus cap will absolutely be applied to all investment banking 'code staff' with effect from January 2013 (but will only impact bonuses paid in 2014). Fund managers, however, have escaped - the European Parliament has voted that European fund manager bonuses won't be capped.     

To recap, fund managers were facing having their bonuses capped at 250% of salaries, in the style of investment bankers. Now that this has been voted down, fund managers will be able to bonuses of any size they like. “This will be viewed as a major victory for the asset management industry," says PwC.

Needless to say, there will be repercussions.

Firstly, we forecast that a lot of people working for investment banks with fund management arms will be redeployed within those fund management businesses - much in the way that banks have already reclassified proprietary traders as fund managers to avoid the Volcker Rule.

Secondly, we forecast that fund managers will attract go-getting risk takers and that investment banks will attract pedestrian salary men and women, which doesn't sound right.

Lastly, we expect that banks will substantially increase their salaries in advance of the bonus cap, and that fund managers won't. As a result, the salary differential between investment banks and fund managers will become even wider than it is already. Senior bankers will become inured to these higher salaries and won't want to move to the buyside. Investment banks already have a problem with low turnover and that problem is about to become a lot worse.


The Guy Hands comeback that wasn’t. (Evening Standard)

RBS is cutting 1,800 jobs at Ulster Bank in Ireland. (Dealbook) 

Citadel is cutting six jobs in Hong Kong. (FinAlternatives)

Some analysts say that Deutsche Bank might be forced to scale back its ambitions. Mr. Chappell of Berenberg Bank estimated that the cost to Deutsche Bank of meeting new requirements on capital would consume four years’ worth of profits. (Dealbook) 

“Barclays, Credit Suisse, Deutsche Bank, and UBS are among the most exposed in Europe to a combination of regulatory initiatives being undertaken globally on capital market-related businesses.” (Bloomberg) 

Ian Hannam relinquished up to £30m of bonuses when he left JPMorgan. (Sky) 

How to become a diamond dealer. (Guardian) 

“Your status is determined by physical attributes and nonverbal cues. People decide if you are competent in less than 100 milliseconds.” (Stanford) 

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The most stupid purchase an investment banker has ever made 

The hedge fund which keeps hiring 

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