Investment banking is a great business. The hours are inhuman and the job can be murder on family life; once, near the end of a long boom, a mergers specialist admitted to me that he'd been home for dinner three times in the previous two years. But the flip side is simplicity. Life at an i-bank can often be distilled into a handful of easy-to-remember rules.
Rule No. 1 is that whenever someone says it's not about the money - it's about the money. This is a close cousin of rule No. 2, which says that when it comes to money, investment-bank economics go like this: heads, the employees win; tails, the shareholders lose.
If you don't believe it, stroll down to the lobby of Morgan Stanley headquarters in New York, not far from Times Square, and count the people with expensive watches and designer suits. Morgan is one of the world's most prestigious investment banks and among those most blighted by the U.S. mortgage mess; for fiscal 2008, profit fell 58 per cent. Because of this, the owners have lost 24 per cent in the past year. Chief executive officer John Mack renounced his bonus, called the results "embarrassing" and declared: "Make no mistake, we've held people accountable."
But the employees are not suffering much. Accountability does not extend to the pocketbook: amid all this value destruction, Morgan's compensation costs actually went up 18 per cent. If that seems wildly out of step, it's really not. Merrill Lynch had a worse year than Morgan: net revenues fell by 67 per cent last year (also because of mortgage trading losses), the company lost $7.8-billion and the stock price fell 42 per cent. And Merrill's compensation expense dropped a grand total of 6 per cent.