Ocean
The Living Force
this is a good one
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http://www.thisislondon.co.uk/standard/article-23575009-details/I+never+believed+I+was+worth+my+$2.3+million+bonus/article.do
I never believed I was worth my $2.3 million bonus
David Cohen
20.10.08
Smell the fear: a lot of traders at Canary Wharf won't survive the downturn
From his position as managing director of one of the largest trading desks in Canary Wharf, Michael Sharp has witnessed the impact of the City's rampant bonus culture first hand. "I have watched people come into the City being normal and humble," he says. "When they get their first million-dollar bonus, you tell them they have been lucky, that it has been an exceptional year, that it will never happen again, and they listen to you.
"But after three years of ever-escalating multi-million dollar bonuses, most bankers become arrogant and start to believe they are getting paid because they are smart, because they are worth it."
He shakes his head. "I was never under the illusion that I was worth my bonus. Last year I got $2.3 million, small fry relative to some of my peers who raked in up to $30 million. But the truth is that any fool could have made money in the market in the past few years. It was easy. You could be mediocre and make millions."
Michael, 40, who over the past 17 years has worked for Salomon Brothers, Citibank, Credit Suisse, Lehman Brothers and Morgan Stanley, though not necessarily in that order, and who currently runs a 25-man liquid-bond trading desk, has just spent $2 million renovating his six-bedroom second home on the French Riviera, completely gutting it and building a swimming pool and tennis court.
He lives with his wife and three children in a £3 million apartment in Knightsbridge, drives a Mercedes CLK, has a 700-bottle wine cellar and thinks nothing of spending £20,000 on family holidays in the Seychelles or skiing in Verbier. But relative to his colleagues, he considers himself "conservative" and "sober".
"Four of my peers bought and fly their own private planes or helicopters and have even built landing strips at their houses in the country," he says. "Another head of trading at our bank has just laid out $8 million on a chalet in Courchevel and this is a guy who this year lost our bank millions of dollars.
"In the past few years, the greed and conspicuous consumption has just got worse and worse. Porsches, Ferraris, if you go into the underground car parks at Canary Wharf, you will see how commonplace they have become. People have become more and more flash, spreading their money like its manna falling from heaven.
"At bonus time, they brazenly tell you that so-and-so at another bank got more and that to keep them on, you will have to cough up."
But with this week's £37 billion bail-out of the banks by the Treasury, those days, he admits, are gone for ever. Gordon Brown has called for an end to the bonus culture as we know it last year City bonuses amounted to an eyewatering £17 billion blaming "excessive irresponsible risk-taking" and saying that in future all directors in the three semi-nationalised banks (RBS, Lloyds TSB and HBOS) will be paid bonuses only in shares. He called for an end to the "age of irresponsibility for which the rest of us [taxpayers] have paid".
Does Michael, whose name has been changed at his request to protect his identity, think the rest of the City will follow suit? "This is unknown," he says. "I think people who've generated profits for their banks will still get bonuses but they will be at least 25 per cent down on last year.
"Ironically, those who'll get the biggest bonuses this year are the former Lehman's employees who bankrupted their own bank. Nomura has taken more than 600 of their investment banking and equities guys in an attempt to become a player and has agreed to pay them the equivalent of their 2007 bonus for two years.
"It's the best deal in the City. If anything sums up how ludicrous the bonus culture has become, and how little it has to do with fairness or performance, this is it."
But Nomura aside, Michael believes that the downturn will bring a rude awakening.
"You can smell the fear in my department," he says. "People realise: 'Oops, oh s***, we've just gone through a near-death experience.' They know the City is changing shape and that the shake-out is far from over. The only questions on people's lips are: will we survive? Will we merge? Will we also have to be nationalised?"
With London's jobless total rising to 300,000 at the end of September and predicted to soar in the coming months, the balance of power between employers and employees has shifted decisively.
"We have already laid off 15 per cent at our bank this year but there will be more pain to come as the banking industry shrinks by 40 per cent," says Michael, one of 1,100 section heads with the title managing director at his investment bank.
"The reality is that people are desperate to hang on to their jobs. And with the bonus element amounting to 80 per cent of our pay packets, we are about to discover the downside of just how variable our pay can be."
But how did we get here? And is the bonus culture really to blame for the meltdown and near-collapse of our financial system?
Michael has seen the explosion of the bonus culture at first hand. "I was a maths graduate fresh out of college and newly married when, in 1991, I got a job as a trader at Salomon Brothers," he says.
"Like everyone, I was motivated by money, by the fact that the City paid better than everything else. My starting salary was £22,000 and my first bonus was £20,000 but within three years my total package had grown to £250,000. I didn't feel rich but I had the sense that I would never have to worry about money again."
In 1995, at the age of 25, he bought a five-bedroom luxury flat in west London for £500,000, paying in cash. He also bought a new Mercedes for £36,000. Every four years or so, he was headhunted by another bank and offered a golden signing-on handshake of around $550,000, he says.
He rose from trader to vice president to director to executive director to managing director, his remuneration package climbing inexorably to over $2.3 million. There were only four years in which he did not get paid a bonus, and the last time, in 1999, seems like a very long time ago indeed.
But Michael, the son of an Army officer, was wary of spending his cash too easily. It was to prove his saving grace as he ploughed most of it into a pension, though even he got infected by the ubiquitous greed and easy money, living high on the hog and losing £250,000, he says, on dodgy speculative investments an internet company and a film taxavoidance scheme along the way.
"The problem with bonuses is that they were terribly subjective," he says. "With traders at the bottom, it was easy to allocate them a percentage of the profit they'd made, so a $2 million bonus on $20 million profits they'd earned the bank was common.
"But as you go up to division heads, the percentages could increase exponentially and the basis for determining the bonus would often be bizarre. Last year my team's profit increased 45 per cent to $250 million but my bonus was unchanged and other times we've tanked and my bonus increased."
As a rule of thumb, Michael says heads of desks (like himself) would get $2.5 million to $6 million, division heads $10 million to $15 million, board directors $25 million and top hedge fund guys about $50 million.
But, he says, all this did was to encourage bankers to trade in instruments that many of them could not even really understand themselves. As this practice took hold, it became easier and easier to make money ... while the good times were rolling.
"The past seven years saw a brain drain of the most talented traders and risk managers to hedge funds, leaving banks with a bunch of good communicators who were asked to simply sell products that would earn the bank fees.
"To make matters worse, trading in complex illiquid instruments like mortgage-backed securities and exotic derivatives whose risk was not easily measurable became the norm.
"These products were complicated and nobody bothered to look at what was behind them. But every time they were parcelled up and sold on, we made a fee, and after a while we forgot to even realise there was a risk, let alone to quantify it."
Why didn't the guys at the top do something about it? "Nobody wanted to turn down business because the more volume we did, the more we made, and the more we made, the more fearless we became," he says. "Everybody was drinking from the same trough."
Where are we now in this crisis? "I don't think this is finished but at least the doctor is in the room trying to save the patient. Every day is like a month at the moment with new banks going bust and new rules coming in.
"Banks are just starting to lend to each other but very slowly. The regulator [the Financial Services Authority] has let this problem fester for so long. Like the top brass at the big losers, who really ought to have the guts to apologise to the taxpayer for their reckless behaviour, the regulators and the credit agencies are also hugely to blame for a shocking dereliction of duty."
Does Michael feel that he and his colleagues have been made scapegoats? "No, everybody knows we've had a good run and that it's come to an end," he says.
Will his lifestyle change? He laughs. "I was going to buy myself a new £65,000 Audi but that has been put on hold, and this Christmas we're going skiing for one week instead of two.
"But I'm one of the fortunate ones. I've always known that what I earned was down to luck. I fear there will be a lot of stories of bankers losing their jobs, their homes and probably, as the stress mounts, their marriages, too. It's those guys who really believed they were masters of the universe that have come down to earth with a thump."
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http://www.thisislondon.co.uk/standard/article-23575009-details/I+never+believed+I+was+worth+my+$2.3+million+bonus/article.do
I never believed I was worth my $2.3 million bonus
David Cohen
20.10.08
Smell the fear: a lot of traders at Canary Wharf won't survive the downturn
From his position as managing director of one of the largest trading desks in Canary Wharf, Michael Sharp has witnessed the impact of the City's rampant bonus culture first hand. "I have watched people come into the City being normal and humble," he says. "When they get their first million-dollar bonus, you tell them they have been lucky, that it has been an exceptional year, that it will never happen again, and they listen to you.
"But after three years of ever-escalating multi-million dollar bonuses, most bankers become arrogant and start to believe they are getting paid because they are smart, because they are worth it."
He shakes his head. "I was never under the illusion that I was worth my bonus. Last year I got $2.3 million, small fry relative to some of my peers who raked in up to $30 million. But the truth is that any fool could have made money in the market in the past few years. It was easy. You could be mediocre and make millions."
Michael, 40, who over the past 17 years has worked for Salomon Brothers, Citibank, Credit Suisse, Lehman Brothers and Morgan Stanley, though not necessarily in that order, and who currently runs a 25-man liquid-bond trading desk, has just spent $2 million renovating his six-bedroom second home on the French Riviera, completely gutting it and building a swimming pool and tennis court.
He lives with his wife and three children in a £3 million apartment in Knightsbridge, drives a Mercedes CLK, has a 700-bottle wine cellar and thinks nothing of spending £20,000 on family holidays in the Seychelles or skiing in Verbier. But relative to his colleagues, he considers himself "conservative" and "sober".
"Four of my peers bought and fly their own private planes or helicopters and have even built landing strips at their houses in the country," he says. "Another head of trading at our bank has just laid out $8 million on a chalet in Courchevel and this is a guy who this year lost our bank millions of dollars.
"In the past few years, the greed and conspicuous consumption has just got worse and worse. Porsches, Ferraris, if you go into the underground car parks at Canary Wharf, you will see how commonplace they have become. People have become more and more flash, spreading their money like its manna falling from heaven.
"At bonus time, they brazenly tell you that so-and-so at another bank got more and that to keep them on, you will have to cough up."
But with this week's £37 billion bail-out of the banks by the Treasury, those days, he admits, are gone for ever. Gordon Brown has called for an end to the bonus culture as we know it last year City bonuses amounted to an eyewatering £17 billion blaming "excessive irresponsible risk-taking" and saying that in future all directors in the three semi-nationalised banks (RBS, Lloyds TSB and HBOS) will be paid bonuses only in shares. He called for an end to the "age of irresponsibility for which the rest of us [taxpayers] have paid".
Does Michael, whose name has been changed at his request to protect his identity, think the rest of the City will follow suit? "This is unknown," he says. "I think people who've generated profits for their banks will still get bonuses but they will be at least 25 per cent down on last year.
"Ironically, those who'll get the biggest bonuses this year are the former Lehman's employees who bankrupted their own bank. Nomura has taken more than 600 of their investment banking and equities guys in an attempt to become a player and has agreed to pay them the equivalent of their 2007 bonus for two years.
"It's the best deal in the City. If anything sums up how ludicrous the bonus culture has become, and how little it has to do with fairness or performance, this is it."
But Nomura aside, Michael believes that the downturn will bring a rude awakening.
"You can smell the fear in my department," he says. "People realise: 'Oops, oh s***, we've just gone through a near-death experience.' They know the City is changing shape and that the shake-out is far from over. The only questions on people's lips are: will we survive? Will we merge? Will we also have to be nationalised?"
With London's jobless total rising to 300,000 at the end of September and predicted to soar in the coming months, the balance of power between employers and employees has shifted decisively.
"We have already laid off 15 per cent at our bank this year but there will be more pain to come as the banking industry shrinks by 40 per cent," says Michael, one of 1,100 section heads with the title managing director at his investment bank.
"The reality is that people are desperate to hang on to their jobs. And with the bonus element amounting to 80 per cent of our pay packets, we are about to discover the downside of just how variable our pay can be."
But how did we get here? And is the bonus culture really to blame for the meltdown and near-collapse of our financial system?
Michael has seen the explosion of the bonus culture at first hand. "I was a maths graduate fresh out of college and newly married when, in 1991, I got a job as a trader at Salomon Brothers," he says.
"Like everyone, I was motivated by money, by the fact that the City paid better than everything else. My starting salary was £22,000 and my first bonus was £20,000 but within three years my total package had grown to £250,000. I didn't feel rich but I had the sense that I would never have to worry about money again."
In 1995, at the age of 25, he bought a five-bedroom luxury flat in west London for £500,000, paying in cash. He also bought a new Mercedes for £36,000. Every four years or so, he was headhunted by another bank and offered a golden signing-on handshake of around $550,000, he says.
He rose from trader to vice president to director to executive director to managing director, his remuneration package climbing inexorably to over $2.3 million. There were only four years in which he did not get paid a bonus, and the last time, in 1999, seems like a very long time ago indeed.
But Michael, the son of an Army officer, was wary of spending his cash too easily. It was to prove his saving grace as he ploughed most of it into a pension, though even he got infected by the ubiquitous greed and easy money, living high on the hog and losing £250,000, he says, on dodgy speculative investments an internet company and a film taxavoidance scheme along the way.
"The problem with bonuses is that they were terribly subjective," he says. "With traders at the bottom, it was easy to allocate them a percentage of the profit they'd made, so a $2 million bonus on $20 million profits they'd earned the bank was common.
"But as you go up to division heads, the percentages could increase exponentially and the basis for determining the bonus would often be bizarre. Last year my team's profit increased 45 per cent to $250 million but my bonus was unchanged and other times we've tanked and my bonus increased."
As a rule of thumb, Michael says heads of desks (like himself) would get $2.5 million to $6 million, division heads $10 million to $15 million, board directors $25 million and top hedge fund guys about $50 million.
But, he says, all this did was to encourage bankers to trade in instruments that many of them could not even really understand themselves. As this practice took hold, it became easier and easier to make money ... while the good times were rolling.
"The past seven years saw a brain drain of the most talented traders and risk managers to hedge funds, leaving banks with a bunch of good communicators who were asked to simply sell products that would earn the bank fees.
"To make matters worse, trading in complex illiquid instruments like mortgage-backed securities and exotic derivatives whose risk was not easily measurable became the norm.
"These products were complicated and nobody bothered to look at what was behind them. But every time they were parcelled up and sold on, we made a fee, and after a while we forgot to even realise there was a risk, let alone to quantify it."
Why didn't the guys at the top do something about it? "Nobody wanted to turn down business because the more volume we did, the more we made, and the more we made, the more fearless we became," he says. "Everybody was drinking from the same trough."
Where are we now in this crisis? "I don't think this is finished but at least the doctor is in the room trying to save the patient. Every day is like a month at the moment with new banks going bust and new rules coming in.
"Banks are just starting to lend to each other but very slowly. The regulator [the Financial Services Authority] has let this problem fester for so long. Like the top brass at the big losers, who really ought to have the guts to apologise to the taxpayer for their reckless behaviour, the regulators and the credit agencies are also hugely to blame for a shocking dereliction of duty."
Does Michael feel that he and his colleagues have been made scapegoats? "No, everybody knows we've had a good run and that it's come to an end," he says.
Will his lifestyle change? He laughs. "I was going to buy myself a new £65,000 Audi but that has been put on hold, and this Christmas we're going skiing for one week instead of two.
"But I'm one of the fortunate ones. I've always known that what I earned was down to luck. I fear there will be a lot of stories of bankers losing their jobs, their homes and probably, as the stress mounts, their marriages, too. It's those guys who really believed they were masters of the universe that have come down to earth with a thump."
