Morning Coffee: A new path to massive paydays for London bankers. Goldman Sachs starts to invent the new Big Short
If there’s one message that we’ve consistently tried to get across at Morning Coffee, it’s that it’s extremely rare for anyone to walk out of an employment court feeling like a winner. No matter how rock solid your case it, it’s almost always best to try to work things out amicably and carry on with your career rather than lawyering up. But the rare exceptions to that rule might be getting somewhat less rare, in London at least, thanks to some new employment legislation coming into force at the start of next year.
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Historically, London bankers have faced the problem that employment tribunal awards for unfair dismissal are capped at the relatively low sum of £118,223 (US$158k). This means that for anyone in a front office role, and for all but the most junior ranks in mid-office, it’s simply not worth bothering; the amount you could possibly win is likely to be less than half the basic salary you miss out on during the litigation, let alone the bonus. (It’s not like the USA, where it’s possible to win a seven-figure settlement after only three months on the analyst program).
The exception to this rule has always been that cases are not capped in cases of discrimination. This has led to a number of protracted legal battles over what constitutes ageism and the fine line between “banter” and a hostile workplace environment. In a number of cases, bankers who didn’t feel that they had a colourable discrimination case have demanded to be given their jobs back, either claiming that they could still work with their old colleagues, or angling to get a more favourable out of court deal.
But now, these sorts of shenanigans will no longer be necessary. The latest UK Employment Rights Act has, among many other measures, lifted the cap on claims in cases of simple unfair dismissal. This might end up embarrassing the government somewhat, if the earliest beneficiaries of a piece of legislation which was meant to benefit ordinary employees and the low waged end up being investment bankers suing for millions.
That's not exactly an unintended consequence, though. The government’s own analysis of the new law says that the effect of removing the cap will “have a positive, but limited, impact on households,” but that some groups “may particularly benefit, such as high-earning employees.” The hope is that it will reduce the complexity of cases and consequently reduce the burden on a heavily overloaded employment tribunal system. In other words, if bankers no longer feel the need to bring discrimination into the question, their unfair dismissal cases will be quicker and easier to decide.
Other experts, however, think that this might significantly increase the number of bankers bringing cases. In the current market, the calculation is still likely to favour the strategy of “suck it up and try to find another job quickly” for rainmakers, but for other ranks (and if thing get worse again), we might see a lot more challenges to whether the processes were all followed properly when a banker gets fired.
Elsewhere, there are few male bankers who haven’t daydreamed about the possibility of being played by Ryan Gosling in the film based on whatever eventual meltdown happens in their particular line of business. “Jared Vennett”, the cheerful and cynical mortgage bond salesman allegedly based on Deutsche Bank’s Greg Lippmann, steals the show by seeing the financial crisis coming and profiting by selling collateralised loan obligations.
And now, anyone who thinks that private equity might be the next Big Short has the chance to take that same role with the development of “collateralised fund obligations”. This market was launched last year with some flagship deals led by Goldman Sachs, but the forthcoming multi-billion dollar “Project Potomac”, refinancing some funds managed by Carlyle Group, looks like it is going to break new ground.
Obviously, the simple fact that someone is selling structured securities based on an asset class doesn’t necessarily mean anything in and of itself. To a large extent, it just shows that private equity is a mature and well established enough sector to have the kind of investor demand needed for deals like Project Potomac. But complicated and illiquid deals like this have a way of making big profits for the smartest bankers and traders, and a less happy history for less sophisticated players.
Meanwhile …
Bank of America has made some serious moves to build up its tech investment banking team. Jason Rowe has joined from Goldman Sachs to be co-head of global technology, former JPM banker Mahir Zaimoglu will be head of TMT M&A, Patrik Czornik is joining from JP Morgan to be co-head of TMT for the EMEA region and Gary Kirkham is rejoining from Centerview to be an executive vice-chair. So far, though, no reorganisation into “infrastructure” and “software” teams, as has been the fashion at other banks. (Bloomberg)
Bill Ackman is having a try at an IPO of Pershing Square Capital (he last tried to IPO a closed-end fund belonging to the management company in 2024), and that means a lot of new disclosure. Ackman’s distributions and profit share last year were $142.8m, while CIO Ryan Israel got $44m. (WSJ)
Although a lot of the hiring activity in hedge funds has shifted to the Gulf region, Paris remains the place for quants. Even if the capital allocation decisions are made elsewhere, there is nowhere to rival the talent pool for “architects of models and infrastructure”. (Financial News)
Every lawyer’s worst stress nightmare is to have miscalculated the dates and file a crucial piece of paperwork a day late, derailing a multi-billion dollar M&A deal. Somebody at Simpson Thacher appears to have done just that for the Aramark/Entier deal, and presumably won’t be comforted by the judge’s remark that the damage done to the clients will be mitigated by being able to file a professional negligence claim. (FT)
Citi is hiring in Asia, and sees a good pipeline of financial sponsors deals in particular. (Bloomberg)
KPMG is promising “outsize monetary awards” which will be “considerably bigger” than the annual bonuses, for “AI Sparks” who can demonstrate that they’ve done something innovative with AI. (Business Insider)
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