The London Paper – 5 Nov 2007
‘Uneasy lies the head that wears the crown’ … well, in theory anyway. In reality, recently sacked Merrill Lynch CEO Stan O’Neal’s huge pay-off would suggest that things ain’t that tough at the top. In fact, everything’s just tickety boo when you work at senior levels in investment banking and you fail because you are inevitably given the kind of recompense that would embarrass an African dictator. This is not just a blatant reminder to everyone about the inequity of ‘the system’; it also has interesting implications for the much-used justification for the vast salaries we enjoy in investment banking – that old chestnut about our jobs being somehow inherently more risky than those Jo Public engages in.
So last week the banking sector’s sub-prime loans crisis claimed its biggest casualty after it was revealed that Merrill Lynch had lost $7.9bn, which was $3.4bn more than previously reported. The decision to be so heavily involved in granting poor Americans huge loans would ultimately have come from the CEO and hence his departure. Still, the ignominy of losing his job might have been somewhat offset by Merrills allowing him to retain all his stock awards and benefits, which are worth a measly $162m.
Over a couple of glasses of Sancerre at the local wine bar my colleagues expressed little surprise over O’Neal’s sacking or his financial good fortune since this is de rigeur in the City. It may have been my fevered imagination but I could have sworn that I heard Nick Berry classic 1986 number ‘every loser wins’ playing sweetly whilst we talked.
The most commonly used excuse for investment bankers’ preposterous salaries is that our jobs are significantly more risky than those of ‘civilians’. We point to banking’s hire and fire culture to justify the fact that we earn multiples of those muppets who insist on performing pointless tasks – like fighting fires or arresting criminals. The question raised by Mr O’Neal’s pay-off is whether failure really results in a financial penalty. The evidence to date suggest that the downside is pretty limited since losing your job tends to involve receiving a tad more than a pat on the back and a carriage clock. Indeed, judging by the treatment of Mr O’Neal and numerous other high-ranking City executives it appears to me that the major risk they are taking is whether the superyacht they buy will still be the height of fashion next year. Furthermore, some scallywags out there might argue that firemen and policemen etc are risking a little bit more when they’re performing their duties i.e their lives. Funnily enough, these types generally ain’t sitting next to me whilst I’m having a nosh at Nobu.
I think former US vice-president Dan Quayle summed it up best when, with his usual perspicacity, he said ‘if we don’t succeed, we run the risk of failure’. The $7.9bn failure of Stan O’Neal was of biblical proportions yet so was his pay-off. Frankly, I think we bankers are going to have to invent a better excuse to justify our gargantuan salaries otherwise the general public is going to realise that the joke’s on them.