As the pound plummets, London bankers look cheap
Forget Malaga, where Citi has its new low-cost location in Europe. Forget Eastern Europe and Latin America, where banks have latterly been offshoring teams of people to help construct their pitchbooks. The new low-cost location for banks looking for cheap staff is....London.
The pound has recovered slightly from this morning's record low ahead of an expected increase in UK interest rates, but this isn't preventing some banks (Nomura) from predicting parity between sterling and the dollar before year-end.
While Brexit-related trade restrictions may prevent the pound's decline from otherwise invigorating exports, sterling's enfeeblement could yet catch the eye of US banking executives considering where to locate junior staff. Junior bankers in London were comparatively cheap even before Liz Truss became prime minister. Today, they are comparatively cheaper still.
The first chart below shows dollar denominated total compensation for analysts and associates in London, New York, Chicago, San Francisco and 'other' (mostly European) locations. It's based on last month's salary and bonus survey from Instagram account Litquidity, adjusted for today's new lows in sterling.
The second chart below shows Litquidity's original figures for the disparity based on the exchange rate on August 15th 2022. We've tweaked the 'other' figures for the change in the EUR/$ exchange rate over the same period.
At today's lows, London-based analysts are earning between 36% and 41% less than their New York counterparts in dollar terms. Third year associates are earning 43% less.
The bargain price of London's bankers follows last week's decision to remove the EU bonus cap. However, the cap's removal won't impact junior staff who were never affected by it: it applied only to regulated material risk-takers, who are typically at managing director level and above. Even at MD level, the end of the cap is unlikely to boost pay in London. Instead, it's widely expected to lead to a reduction in salaries at a time when bonuses are shrinking anyway.
It's too early for US banks to conclude that cutting juniors in London makes no sense when they're so cost-effective, but that realization may yet sink in. As the UK comes to resemble an emerging market, could yet gain some of the advantages of offshore locations, including large teams touching-up pitch books and working on regulatory technology projects. This may not be what Liz Truss had in mind.
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