John Mack of Morgan Stanley (MS) made sure that he had a large base salary for this year, even though his firm nearly fell apart last year. The management of Citigroup (C) also wants to do something for its “best” employees. According to a number of media reports, the bank plans to give its senior investment bankers raises of up to 50%.
It won’t matter. The very best people will flee the Citi pay caps to make millions of dollars at private equity firms and hedge funds.
The federal government has proved adroit at forcing the cream of the crop, the people who create the revenue and earnings, out of America’s largest banks and brokerage firms. These people are used to making $10 million a year or better. They make their employers tens of million if not hundreds of millions of dollars in return. Talent at that level can write its own ticket. Boutique firms like Greenhill (GHL), large hedge funds, private equity operations, and foreign banks will pay the going rate to get the stars.
The Administration has made certain that the key managers at banks, their intellectual capital, will be displaced, further damaging their chances of rebounding from their worst year in decades. An operation that the government should have performed with a scalpel instead of a meat cleaver has chopped the wages of mediocre and extremely skilled bankers with the same cut.
The government can say that it saved the banks but it also took away from them their best weapons to withstand what is still likely to be a rough and dangerous future.
Douglas A. McIntyre
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