Since Lehman Brothers failed in October 2008, many senior investment bankers have turned their faces to the wall and refused to accept the new reality. Most of my contacts insisted that the industry was not in secular decline. “It’s a bad phase,” they murmured. “Things will improve next year.”
Few of the bulge-bracket players would countenance the notion that their businesses were substantially overstaffed, that costs were out of control and that the soft-touch regulatory environment had gone forever. I was stunned by the arrogance, greed and, let’s be frank, stupidity of the industry.
Then there was a public backlash against big bonuses. So what did the investment banks do? Did they rethink their compensation model – come together as an industry and agree that they were going to cooperate on implementing lower pay?
Of course not! Senior investment bankers wailed that they couldn’t cut staff remuneration because otherwise their best people would go elsewhere. Instead, they raised fixed salaries to ridiculous levels – often three times pre-crisis levels. This elevated fixed costs and meant that any restructuring would be infinitely more expensive.
Then came UBS. And maybe now the game has changed.