On September 11, 2008 The New York Times declared the “end of an era”. They were, of course, talking about the financial crisis and the final nail in the coffin of large bonuses. As revered US banks Goldman Sachs and Morgan Stanley converted to bank holding companies.
Since the financial crisis much has changed in investment banking and nobody has felt the effects more than, you guessed it, investment bankers. We take a closer look at the effect on the bankers of Great Britain and, in particular, their bonuses.
The Culture of Bonuses
Bonuses have long been an integral part of the pay system in investment banks. In 2014 EU rules limited bonuses to 100 percent of salary. However, prior to this some bankers were seeing in excess of 200 percent of their salary in bonuses.
This led to an entire culture of bonuses and, for many up-and-coming bankers, was a key factor in pulling them to the industry.
This culture led to many of the bars and restaurants surrounding the banks awaiting the day that the bankers were told their “numbers”. A banker flush with cash was good news for getting rid of your top of the range wine and champagne.
But like all good things, this was destined to come crashing down. Which it did, leaving the top shelf wines of the City’s bars and restaurants untouched for some time.
The Crisis of Bonuses
The financial crash of 2008 saw these bonuses drop significantly. The Centre for Economics and Business Research (CEBR) in 2013 estimated a drop of 85 percent across the board.
Comparing the high watermark of 2008 (£11.6bn) with 2013 (£1.6bn). The CEBR also released that the average bonus pay-out per person shrunk from £33,000 a head to £6,400.
This, however, did not seem to stop the industry being a desired destination for aspirational young-people. Banking saw a boom in popularity in the mid to late 1980s, with the birth of the “Yuppie” generation.
The 1987 film Wall Street with the iconic Gordon Gekko (played by the brilliant Michael Douglas) epitomised, and likely contributed, to the rise in this “sexy” industry.
The industry continued to draw in the aspirational. Films did place a few bumps in the financial road. For example, the 2000 dark thriller American Psycho, which certainly did not glorify the industry.
Despite these bumps in the road, investment banking has continued to pose a lucrative and attractive career for many young people.
Although the drop in bonuses likely did contribute to a drop in popularity for the industry, there seems to have been no major dent as banks are still inundated with far more applications than they can hope to even read.
As of February 16th, 2022 City bankers will however, collect their biggest bonuses since before the 2008 financial crisis. Despite most of the population feeling a squeeze on their finances, bankers will pull in large bonuses as employers seek to secure the best talent.
The UK’s big four domestic banks – HSBC, Barclays, Lloyds and NatWest – are estimated to pay out bonuses totalling more than £4bn. This is as a direct result of their combined annual profit being estimated to exceed £34bn – the most since the 2007 boom.
As we step ever further into the future, so does investment banking. The rise of cryptocurrencies and the impact of the pandemic has changed the very fiber of almost all industries.
Cryptocurrencies have begun to change the banking industry from a financial industry to a tech company. Vitalik Buterin, who founded Bitcoin rival Ethereum, was described as a child by CNBC as a math and programming genius.
He now is worth an estimated $1.46bn and is the founder of the second biggest cryptocurrency.
The pandemic has driven all industries into the home. Offices are now kitchen tables, pillows on laps, and panic brought flat pack desks.
For investment banking this has changed in the very same way, so, although bonuses may be on the rise again, where these are spent and experienced may be very different.