Excess in the City

[southeastastra]

huge bonuses for traders. can someone tell me exactly where all this money comes from?

Big businesses paying for transactions and raising capital/debt finance.

Pensions schemes and other large investors paying fees.

Public sector putting into place PFIs.

interesting, think there is programme on itv, oh is this the programme?
when is it on?

are PFI basically loans from private companies funding the public sector?

the programme was on last night

I don't think traders have much to do with PFIs - or at least, I don't think that much of their income comes from PFIs. Some of the money will come from proprietary trading - in other words, it's the same as if you went on the stock market and traded very well, and made money by buying low and selling high. Some of it will come from the investment banks creating hedging instruments, and the subsequent trading of those. Some of it will come from fund management, which is pensions etc.

A big part of why the City is so strong these days, is because the regulations here are more trading-friendly than in Europe and in the US. So a lot more traders are here, than used to be, bringing the money with them.

a lot of it is trading in commodities, currencies, markets
a lot of it is private equity related
a LOT of it is derivative related
a fair amount is event driven - eg takeovers, M&A. Not much specifically related to PFI really, some advisory fees but the bits of the banks that do these aren't the bits paid $2m+ bonuses.

hedge funds do all of these and also make vast sums of money from management fees (5% of everything under management per annum - and many hedge funds are worth hundreds of millions or billions of dollars)and fees on profits they make (eg they take 20% of profits over 20% or even sometimes 20% of everything above the line)

well i guess it's something that i have no understanding of at all, lots of googling to do. do you think the bonuses are fair?

I think that there is lots of mediocre city people receiving estupendous bonus because they are at the right time on the right place.

Not all city people are like those egotistic characters that participated in the programme last night.

I object to untalented people getting stupid amounts of money....

So many NICE, bright, intellingent and not ostentatious men adn women working in the City ... shame we never see them on TV!!!

The banks make a mint out of PFI, IME

I was also making an assumption that the OP was related to City bonuses in general - not just to traders (as the media often talks about traders, but often means the City as a whole IYSWIM).

does everyone get a bonus then? i'm just intrigued as to where so much money comes from!

my stockbroker posh sister says the bonuses are always that great, but all relative i suppose?
did i miss the programme?
they'll repeatit ?

Nearly everyone in the City gets a bonus. (Well, I say "nearly everyone" - I mean, professionals, not cleaners and people working in canteens, I don't think.)

But the % of the bonus ranges quite a lot. If you work in, say, retail banking, or in investment banking, but far away from trading, your bonus might well be 10% or something of your annual salary, or less, depending on what sort of year you've had, and what sort of year the institution has had.

The closer you get to trading, and the higher your rank, the greater the possible %. Actual traders, or fund managers, can get multiples of their regular salary. The organisations like to pay people in bonuses, rather than in regular salary because a) they can scale back bonuses if they have a bad year, while you can't reduce a salary and b) they used to do all sorts of weird dodges to make the bonuses tax exempt. I think all those loopholes have been closed now, though.

Lots of City blokes lie to their partners about their bonuses - certainly I knew never to mention such things to people's wives.

banks like bonuses because they never pay them up front - they'll declare them in say december and pay them in installments in say March and the following december and if you leave before then you lose your entitlement.
it is a way of locking you in - basically you will never get all your bonuses unless you retire in the job as you will always be waiting for one or a big slug of one to be paid (even though it may have been declared). unless you get headhunted out by a rival who agrees to buy you out of your bonus - ie pay you the 500k or whatever you are waiting to get but will lose if you leave.

basic salaries are low - most people on between 80 - 120k, a few on 150 or 200 but that is it. the rest is paid in bonuses - so the incentive to stay is there.

basically for things like M&A, corporate finance, capital markets departments in a bank, a certain percentage of everything they make in that department (eg 20%) goes into a bonus pool and is paid out to everyone - lions share to main director(s) in dept, some to other managing directors, rest to gimps and secretarial staff etc. everyone ends up thinking they have been shortchanged except the bloke who is handing it all out

of course traders are probably on eat what you kill, so they know what their bonus is (eg they get 10% of everything they personally make for the bank)

it seems like such an mysterious industry to me..

i don't know if it will be repeated i'll look out for it, though the programme was more about what they could afford rather than how they could!

Yeah, everyone always feels shortchanged. DH hands out bonuses, and he finds the whole thing dispiriting. People are always either disappointed, or pleasantly surprised, but then thinking they probably should have got even more.

(DH isn't in a department close to the money - his team doesn't make money per se, so it's all a bit mystical and weird.)

sounds like horrible working environment imo too
bullying too
not for me but thats where the money is, making it off the backs of others too
' handbags and the gladrags..that you're grandad had to sweat so you could buy'

The working environment varies quite a bit. I worked in quite a few Investment Banks (on the "gimp" side, as PPH would call it, I think). Sometimes it was great, sometimes it was crap. Depended on the boss.

DH takes very good care of his staff, works on staff retention, cares about treating them well, etc etc.