Morning Coffee: Goldman Sachs' bonus cap plans are not so simple. UBS's latest cost-cutting intentions

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Brexit is bearing fruit. Goldman Sachs is lifting the bonus cap for its circa 570 regulated London bankers and come the end of this year, bonuses this year might be 15 times salaries instead of two times salaries. Or not. 

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Lifting the European Union's bonus cap is fine in jingoistic theory, but less easy in practice. This is because, contrary to widely held belief, the removal of the bonus cap does not imply a big increase in pay: banks will likely want to hold pay for individuals stable across the cycle; bonuses may be higher in some years but lower in others. To enable this, salaries (or at least salaries, plus fixed allowances) must fall.

As we observed yesterday, it looks a lot like the average senior Goldman Sachs banker in London could see a $447k (£350k) drop in his/her salary as a result of the sunlit bonus uplands. This is what's required to bring the average senior London salary of $847k at Goldman Sachs in line with the New York managing director average of $400k. In good years, bonuses will rise to compensate. In bad years, bad luck.

How will Goldman Sachs' London finest feel about this? Possibly not as enthused as the bombast might suggest. Salaries are guaranteed income; bonuses are not. Even in a bad year there are school fees and mortgages to pay. 

This creates a problem for Goldman Sachs, and for the other banks, which the Financial Times says are planning to discard their own bonus caps "later in the year." If banks are to cut salaries or remove allowances, they will likely need to tweak contracts. And tweaking contracts requires the consent of the signatories, who might not be inclined to give it.

The possibility, therefore, is that the new rule creates two tiers of managing director at Goldman Sachs in London: those within the bonus cap, and those without. Those without are likely to be newly promoted managing directors and recent hires. Those within are likely to be existing MDs whose gigantic salaries are integral to their lifestyles. In difficult years, when costs are being cut and revenues are down, guess who will be let go first?

Separately, UBS isn't just extracting multiple waves of Credit Suisse people this summer. It's also thinking about costs in its asset management division.

Reuters reports that UBS is eyeing the extraction of "several hundred million dollars of costs" from its asset management division. It is particularly eyeing its Swiss back office and the possibility of "absorbing" parts of the asset management business into the wealth management unit. ✨

Meanwhile....

Nomura and Mizuho made more than $100 million of potential losses tied to a series of failed stock trades made by investment fund All Blue Capital. (Bloomberg) 

Bill Gross: "Those that argue for lower rates have to counter the inexorable upward climb in Treasury supply and the likely Sisyphean decline in bond prices. Total Return is dead. Don't let them sell you a bond fund." (Bloomberg) 

The Consolidated Audit Database is due to come online from May 31st. It will collect almost all US trading data, as many as 500 billion records a day, and give the SEC a live window into activity across markets. Citadel Securities is leading the objections. (Bloomberg) 

Fresh from its cuts, Peel Hunt hired James Thomlinson from Jefferies. "He is a fantastic hire, and there will be more to come." (Financial News)  

PJT Partners hiked first quarter pay spending 72% after revenues increased 65%. (Financial News) 

Marinela Tudoran, Credit Suisse's investment bank chief information officer, is leaving. (Financial News) 

Banks are big on Saudi hiring. HSBC and JPMorgan have as many people there as in Dubai. (Bloomberg) 

Jain Global hired Jeremy Wyatt, formerly director of prime and investor services sales for hedge funds and alternatives at JPMorgan, as its EMEA head of trading. (Global Trading) 

Exoduspoint was up about 2% for the year to the end of March, according to a letter it sent to investors, benefiting from the bond market basis trade. (Reuters) 

Citadel's flagship fund, Wellington, rose 2% in April. (Reuters) 

Members of the Bank of England's Policy Committee have racked up some large travel expenses. One has spent £108k in a year. (Order Order) 

Alternative economist nicknames Friedrich von Hayek: Road Warrior. Serfin' U.S.A. (Acadian Asset Management)

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