Bankers are sitting on a profit of more than $25bn (€21bn) on their share options on the back of the meteoric rise in financial stock prices on both sides of the Atlantic over the past 12 months. The recovery in banking stocks has left staff at the biggest US and European banks with share options worth a total of almost $100bn at the start of this year.
Figures compiled by Financial News from annual reports reveal that staff at 10 of the largest houses - Goldman Sachs, Lehman Brothers, Merrill Lynch, Deutsche Bank, Morgan Stanley, Citigroup, Bear Stearns, JP Morgan, Credit Suisse and UBS - saw the value of the options they held at the end of 2004 soar to $92bn by the end of last year. Stock options at other banks would send the figure above $100bn.
The value of share options in the banking industry could be higher or lower because staff were awarded new options and cashed in existing holdings during 2005. However, bankers are also in line for billions of dollars worth of profits from other forms of compensation, including shares and restricted stock.
Financial sector share prices surged last year in Europe and the US, led by Lehman Brothers, which rose by almost half, Credit Suisse, up 40%, and UBS, whose shares climbed by a third. Lehman Brothers' staff were sitting on a total paper profit of $5.3bn based on the exercise price of their options, while Merrill Lynch bankers made a notional gain of $4.3bn, just ahead of rival Goldman Sachs, where staff are sitting on a $4bn profit.
Not all US banking stocks performed as well. Citigroup and JP Morgan enjoyed minimal share price rises, while Morgan Stanley, which drafted in John Mack to replace Philip Purcell as chief executive after a protracted leadership battle, hardly moved, leaving staff a profit of $1.5bn on their share options.
UBS led the way in Europe as its bankers ended last year with a paper profit of $4.5bn. A source at the bank said the value of staff options was boosted last year by the exchange rate between the dollar and the Swiss franc because UBS is one of several European banks that awards compensation to some of its staff in dollars.
Banks with a November year-end have reported record results for 2005 on the back of a rebound in equities and M&A, where volumes in Europe and globally surged to their highest levels in five years.
Jon Peace, co-head of European banks research at Fox-Pitt, Kelton, a financial services investment bank, said: "The strong finish to the year by US banks is likely to be mirrored by the European houses. Trading made up some ground and M&A ended the year in reasonably robust shape, so in most cases full-year revenues are undoubtedly heading for a record." Analysts are predicting a similarly good performance across Europe.
JP Morgan reports its final results next week, while the European bank reporting season starts at the end of the month when ABN Amro produces its results. Deutsche Bank follows on February 2, while French and Swiss banks start reporting full-year results a fortnight later. Barclays Capital and Royal Bank of Scotland are scheduled to report in late February, with HSBC following in early March.
One former US banker working at a European bank said the share price surge offered a silver lining for staff, who might be disappointed during the impending bonus season.
"Bonuses should be quite good but several bankers have shares in their present and previous employers, so they will have made healthy profits on those," he said.