Bank of America Corp and UBS AG, which eliminated jobs over the past two years as they received government aid, are luring bankers in London from competitors by as much as doubling base salaries, recruiters said.
UBS is offering managing directors in its securities unit base pay of as much as £300,000 ($470,000) compared with at least £150,000 last May, said three people with knowledge of the matter. Bank of America, Merrill Lynch’s owner, raised London managing directors’ base pay to about £230,000, from £150,000 in 2009, said the people, who declined to be identified because the terms are private.
“Some of these firms were hemorrhaging talent, and those gaps are being filled in a hurry,” said Simon Hayes, London- based head of financial services at Odgers Berndtson, a 45-year- old recruitment firm. “The likes of Merrill and UBS in London and elsewhere have been hiring very aggressively to deal with the losses of the previous 18 months.”
Both banks are no longer taxpayer owned, leaving them free to set pay themselves. The Swiss government sold its 6 billion-franc ($5.6 billion) investment in UBS in August, while Bank of America has reimbursed the $45 billion it received. The firms are targeting rivals still subject to pay limits. They are also hiring traders that moved to brokerages during the crisis. “In the world of investment banking, it’s a simple case of who pays wins,” said John Purcell, managing director of London- based executive search firm Purcell & Co “Institutions that are fairly directly under political control are facing significant difficulties retaining staff.”
Royal Bank of Scotland Group Plc, 84 per cent owned by the UK government, handed control over its bonus pool to the Treasury in November in return for a second bailout. The percentage of “high achievers” leaving doubled in 2009, Chief Executive Officer Stephen Hester said in December. The lender hasn’t raised managing directors’ salaries by more than the rate of inflation this year, said a person familiar with the matter.
UBS hired about 350 bankers worldwide in the past 12 months, mostly for its fixed-income businesses, according to a spokesman for the Zurich-based lender.
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In November, the firm named former RBS banker Rob Jolliffe co-head of its global debt capital markets unit, based in London. Last month, the bank also hired ex-RBS trader Brett Golledge as head of index options trading in London. Index options enable investors to bet on the performance of equity markets without having to buy individual stocks.
Investment banks are also hiring traders that moved to brokerage firms during the credit crisis. David Knight, who left Citigroup Inc to join ICAP Plc’s equities division in February 2008 as a sales trader, joined UBS last month to lead a team of salesmen catering to hedge funds.
UBS cut about 18,700 employees from 2007 to 2009, while Bank of America cut more than 46,000 from 2007 to 2008, according to data compiled by Bloomberg. The firms declined to disclose how many staff they have cut in London.
The banks are raising salaries as they cut bonuses. UBS’s bonus payouts dropped 71 per cent to 2.9 billion Swiss francs in 2009 compared with the peak 9.92 billion-franc payment in 2007.
Boosting base salaries as a percentage of total pay marks an attempt to assuage public anger at large one-time payouts, according to Shaun Springer, CEO of Square Mile Services Ltd, which advises London financial firms on pay. Banks are also pre- empting moves by the Group of 20 nations to limit bonus pools and require bonuses to be deferred and subject to clawbacks.
“Higher salaries are being used to compensate for lower bonuses and to readdress pay cuts and pay freezes, which have been in place over the past 18 months,” said London-based Paul Venables, group finance director at recruiter Hays Plc.
Boosting base salaries may strip lenders of some flexibility to reduce compensation costs were revenue to drop.
“The more you increase it, the less flexibility you have and also, to a degree, the motivation for people to put extra effort in,” said Chris Roebuck, a visiting professor at Cass Business School in London.
Bank of America hired Michael Guy as co-head of distressed sales and trading for Europe, Middle East and Africa from Credit Suisse Group AG in September. He will be based in London. The firm also hired Thierry Groell from RBS Sempra Commodities LLP for its raw materials team in London. He started in November.
A spokeswoman for Bank of America in London declined to comment. Both banks declined to comment on individual bankers’ compensation.
Bank of America is still replacing employees after at least three dozen senior investment bankers quit following its purchase of Merrill Lynch. Executives who followed Merrill CEO John Thain and President Gregory Fleming out of the firm last year included London-based Mark Aedy, who ran corporate and investment banking in Europe, and London-based health-care banker Richard Girling.
“This is not wholesale hiring, rather it’s tactical hiring to rebuild decimated businesses,” said Springer.
UBS aims to generate about 40 per cent of the investment bank’s total revenue from the fixed-income unit in three to five years, or at least 8 billion Swiss francs annually. That would return fixed-income revenue to the levels achieved before the credit crisis led to record losses at the bank.
“UBS has been concentrating on recruiting candidates on base pay only,” said Jason Kennedy, CEO of Kennedy Associates, a London-based recruiting firm. “The target candidates, in general, have been ex-UBS employees and other candidates who in the past moved from the bulge-bracket firms to the small broker dealers and now want to move back to the larger firms.”
The bank is already benefiting from the hires and gaining market share in fixed-income and equity derivatives, JPMorgan Chase & Co banking analyst Kian Abouhossein said.
“They had an exceptionally tough time and fired a large amount of people,” Kennedy said. “Still, people believe UBS is a stellar name so they have managed to attract some talent. The base salary has become a big thing for them.”