11 August 2021 Analysis Of The Week: Banking Boom

Analysis Of The Week: Banking Boom​

The Story
The banking sector is booming. After an initial dip in the first quarter of 2021, Goldman Sachs (GS), Morgan Stanley (MS) and JP Morgan Chase (JPMC) all racked up their highest ever profits during the pandemic (Bloomberg). JPMC stood out, earning the equivalent of $131 million per day, with profits of $47.8 billion its highest ever, and the trend wasn’t just stateside. European banks UBS Group AG and Barclays plc posted their highest earnings for a decade and Deutsche Bank’s profits were their highest for eight years (Bloomberg).

“We’re performing. And I would tell you to expect to see us pay appropriately during our normal cycle,” GS Chief Executive David Solomon told the Financial Times. In early August, GS announced that junior analysts’ salaries would rise to $110,000 in the first year, making the pay package one of the most generous in the industry. Investment banks tend not to increase basic salaries, usually opting to reward staff with bonuses, which are often linked to performance. Wall Street first year bonuses average around $40,000 (Financial Times).

The Background
Mirroring the current optimism in many parts of the global economy, as COVID-19 restrictions ease, an uptick in corporate activity has fuelled banking incomes. With last week’s announcement of promising employment figures in the US (Wall Street Journal), potentially indicating that the world’s largest economy is beginning to stabilise, the optimism may be well-placed.

Concurrently, demands from different employers vary significantly, and the Delta variant is continuing to put a spin on things. Wells Fargo and Blackrock announced on 5 August 2021 that they were delaying plans to go back to the office (Financial Times). Citigroup and UBS plan to adopt hybrid working from home (WFH) models while NatWest has indicated that around 55% of its staff will adopt a hybrid model. GS’s David Solomon, on the other hand has pronounced WFH as “an aberration” (BBC).

Increased pay, of course, does nothing to reduce excessive work demands. An 11-slide deck of “select quotes” from 13 junior investment analysts at GS was released in March 2021. Work conditions were branded as “inhumane”, with “abuse” from colleagues also cited (The Guardian). Regular bedtimes of 3am, with sleep of just 5 hours a night, were – understandably – impacting on mental and physical health. The document showed that the working hours in the week up to 13 February averaged 105, with the average from Christmas to that point being 98.

What It Means For Businesses And Law Firms
Last week’s TCLA newsletter looked at payrises amongst junior lawyers and the banking and legal industries overlap to some extent. In February, Clifford Chance hired Grant Eldred, of GS, as Chief People Officer (The Lawyer).

Bankers, lawyers and other professionals have been busy earning dealmaking and advisory fees. Alongside a robust market, their clients - private equity firms and corporate buyers - are "flush with cash" and "searching for deals" (Financial Times).

A deluge of mergers and acquisitions (M&A) work, initial public offerings (IPOs) and restructurings have led to busy transactional practices. Some of this busyness is down to resurging trends: Loeb & Loeb LLP note that 20% of IPOs over the past year, have been Special Purpose Acquisition Companies (SPACs) (Loeb.com).

As worldwide responses to the pandemic filter through economic systems and working structures evolve, the “new normal” will find its own new norms. The hope for the banking boom is that the sweet taste of success will fuel creative longer-term solutions, so that junior staff can be supported by measures that involve more than just compensation.