The people in Washington think they have bank CEOs and the investment bankers which they employ on the run. The threat of salary caps for CEOs at financial firms that take too much TARP money is just the beginning of a series of lynchings.
If the populist sentiment grows, traders and M&A executives who made $10 million each of the last five years could see their pay capped at $400,000.
They have an option. They can leave the country.
Most investment banks move their people around. A good banker on his way up the management ranks may spend two or three years in London and then a similar stretch in Tokyo. The really lucky ones get sent to Singapore or Dubai. Living overseas tutors the best financial minds in the international nature of finance. The investment banking culture is one of relocation, but with tremendous annual compensation, most talented individuals in the industry take it as part of the job.
Much of the finest M&A, trading, and corporate advisory talent may now simply stay in Europe, the Middle East, and Asia. Investment banking and trading have been cross-border activities for decades. A clever trader can operate out of his house in the Swiss Alps. All he needs is a Bloomberg and Skype. His cost of doing business comes to nothing.
The argument has been made, and made persuasively, that if big American banks lose their most profitable employees due to fear of compensation restrictions, the people will simply leave. The very best executives will find jobs at boutiques and hedge funds. If the pay witch hunt extends to those businesses, the only place to operate may be on a yacht off the Cayman Islands.
Washington should not underestimate the ingenuity of the very wealthy. They will do almost anything to keep their net worths and incomes. Top level banking is a portable business. Big banks still risk losing the people who make them the majority of their profits. The federal government can make sure of that.
Douglas A. McIntyre
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