Now they are eating their young

Having successfully picked the pockets of every man woman and child around the world (the 99%ers),  Bloomberg reports that Wall Street firms are considering whether to freeze pay increases for its young bankers.  

Your blogger was parachuted into investment banking at the grand old age of 30 so did not have to suffer the early years of slog and grog.  However the work habits and pressures were observed;  it was not unusual for junior analysts and capital markets guys to sleep under the desk during company reporting seasons or big IPO’s rather than take the long commute home.  Indeed, they were and are worked like mules. 

It was also an intense period as young bankers were being moulded into the culture of whichever firm for which they worked.  Regular culling hung like the Sword of Damocles over their heads as well.  Typically not always related to individual performance and often the result of economic shifts or the whims of a new boss shutting down whole divisions.  Throwing the baby out with the bath water, was literally correct.

Apparently the amounts of the pay increases were always transparent.  Bloomberg reports that pay increases have traditionally been automatic because “there are traditionally very long hours in terms of the amount of work and this is another way to try to boost their morale and signify that they’re a strong part of the firm and that they’re appreciated,”.

How do you feel appreciated if your pay increase is both transparent - so that one can observe it is the same as everybody else’s - and also automatic?  Taking this further, when even the dill down the hall (the son of a friend of an executive director, who can barely read or write) got the same pay rise as you?  

And how does that compensate for the health damage being done.  One young investment banker I knew one year took more than 100 cross border flights in the pursuit of business for his bank.  I am not sure what the limits are on pilots and stewards air kilometres, but it would seem to be a lot less than that.  

Profits at investment banks, before compensation, are typically split 50/50 with shareholders as a rule of thumb.  Bloomberg reports that around 75% of staff at an investment bank are junior bankers – let’s call them the drones – and salaries are around US$200,000 in the USA.  Which seems a lot until you consider their working and living conditions.

Looking at the big one, Goldman Sachs, Bloomberg reports that profit margins were negative for the 3Q of 2011.  It has approximately 30k staff internationally. And mid 2011, banks everywhere were rolling their staff.  Always the juniors, not the seniors, who are well seasoned.  

Bloomberg also reports for Tiffany, the eponymous trinket destination, “Sales in November and December increased about 7 percent to $952 million worldwide. That was slower than the 11 percent gain Tiffany recorded in the same period a year earlier.”

Of course it would be fairer if all staff took a pay freeze, or even a 10% cut across the board would be fairer on shareholders and staff alike.  But then they wouldn’t be investment bankers would they?  Times are tough when the elite start eating from the hands of their own youth.