Complaints that new hires drained the Jefferies bonus pool
It's not quite bonus season, unless - that is - you happen to be at one of the banks that announces bonuses early, like RBC or Jefferies. These banks tend to be the canaries in the coalmine for the rest.
Jefferies' bonuses are being announced this week. As foreshadowed by Jefferies' CEO Rich Handler's most recent letter to employees, it's a "difficult compensation season" and bonuses there are not great. Handler extolled his people to be patient, pointing out that the difficulties are industry-wide, but there's plenty of complaining all the same. And the complaints are cohering around one thing in particular: all the new Jefferies people who were hired on guarantees.
"We've actually had one of our best years ever," a senior Jefferies M&A banker tells us. "But we're also being told that our bonuses are going to stink. And then we look at the huge number of people who've been hired on big guarantees and who have contributed nothing."
Jefferies' M&A advisory revenues were at record levels in the nine months to September 2022. However, plummeting revenues from equity and debt capital markets teams and comparatively poor results in fixed income trading meant that overall revenues in the investment bank were down 29% year-on-year. Compensation spending across the bank fell 33% over the same period.
Revenues may be down, but Jefferies has done some big hiring. At its October investor day, it said it had added 479 investment bankers since 2019 (an increase of 50%) and 141 people in sales and trading (an increase of 13%).
Not all those people were added this year, but many were. And Jefferies has kept hiring until the bitter end - this week, it's said to be recruiting Andrea Donzelli from Credit Suisse as its Italian CEO, for example. Other Q4 MD level recruits include: Todd Breedon in New York for VC investing; Mark Aldoroty from BNY Mellon as global head of prime services; or David Biller in Singapore as head of South East Asian investment banking.
Some of those new recruits won't have received guaranteed bonuses, but people like Biller - who joined from Citi - are likely to have had their full year's bonuses for 2022 bought out by Jefferies as an incentive to jump. For Jefferies' insiders whose bonuses are tiny after a busy year, this is a cause of pain. "We're still paying guarantees for people we hired in 2021," says one.
Other banks are likely to have a similar problem. People at rival banks point to all the hiring that's happened at places like Deutsche Bank, Barclays and Citi as a source of potential bonus anguish for existing staff in the coming month.
"Nobody is happy, even considering the circumstances," cautions one VP at Jefferies.
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