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Morning Coffee: Bank MDs said to squabble as they pursue $1.7m bonuses. Citi’s new tough guy has arrived

Should the chief executive of Lazard be a “deals guy”?  There are arguments to be made on both sides, according to a number of sources, anonymous and otherwise, who have spoken to the Financial Times about Peter Orszag’s new strategic plan.  On the one hand, the Lazard managing directors are some of the deals-doin’est deals guys there are, and people like Bruce Wasserstein and Ken Jacobs historically gained their respect by leading from the front with their personal franchises.

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On the other, advising on deals for other people is a surprisingly different skill from that of providing strategic leadership for a business, and the personality traits that help you get an M&A deal over the line aren’t necessarily the ones that you need to herd a bunch of equally big egos. This should be good for Orszag, who came to Lazard from Barack Obama’s presidential team. Now, all his political skills are going to continue to be needed as he tries to implement a new plan, under which all Lazard's managing Ddrectors are meant to generate $8.5m of revenue each per year, in return for which they’ll get a bonus of 20% of their fees, or $1.7m.

This sounds like a straightforward target-setting exercise.  But nothing is quite so simple in banking, because M&A advisory might have been the place where the proverb “success has a thousand fathers” was invented.  The amount of credit claimed by bankers on any given deal will almost always add up to several multiples of the actual revenue, and rainmaker MDs are often capable of showing as much or more aggression and energy in the squabbles over allocation as they did on the deal itself.  Orszag claims that the formula will be “adjusted for bad behaviour”, but this sounds more like a recipe for further arguments than anything else.

When he announced the individual revenue targets, Orszag apparently told the MDs that he wanted them to behave in a more “collegiate” way. This contradiction in terms apparently caused senior Lazard banker Gerry Rosenfeld to “go nuts”, according to a colleague speaking off the record.  (“I did not go nuts”, counters Rosenfeld, on the record). 

The senior bankers might not be nuts, but they are clearly grumbling; people are even complaining that Orszag thinks he’s better than them because he has an office on a higher floor.  That sounds like the kind of complaint that nobody would ever make if they hadn’t already been looking for reasons to be annoyed, and it might point to the real problem here – Lazard has lost market share over the last few years and its share price has performed poorly compared to peers like Evercore.

If Peter Orszag can turn that around, then everyone will want to be his friend again, particularly as he has an incentive plan worth $86m if he can get the stock price above $69 from its current level in the $30s.  If not, then he might be left reflecting that it’s never going to be easy, trying to be the leader of a pack of lone wolves.

Elsewhere, Vis Raghavan has now started work at Citi, and once he’s got his cafeteria card and found out where the restrooms are, the Citi bankers will be able to make up their own minds about him. 

Back in April, Jane Fraser referred to the “added intensity he will no doubt bring”, and people who worked with him have talked about his “confident style”, both of which might be noted by experienced bankers as phrases with more of a touch of euphemism.  At JPMorgan he was regarded as a “divisive” character, who apparently fell out with quite a few people.

On the other hand, the saying goes that you don’t find many reasonable people at the tops of high mountains, and many of the same JPMorgan colleagues who admit that “he’s not always the easiest” will say that “We wouldn’t have gone up in league tables” without his “winning mentality”.  As it is at the highest levels of sport, the people you want on your team aren’t necessarily the ones you’d pick to spend a week on holiday with. Perhaps Citi bankers need to work out exactly how strong their will to win is.

Meanwhile…

Deutsche Bank has updated on its current performance at an investor conference – origination and advisory revenues are expected to be strongly up versus a weak benchmark from Q2 last year, but fixed income trading revenues will be down on last year, after having grown in the first quarter.  CFO James von Moltkle is confirming that the overall revenue and cost targets are on track, but it feels a little bit disappointing as an indication of industry conditions? (Zacks)

Ian Dodd, a former global head of recruiting for Goldman Sachs, says that it had a “dysfunctional and toxic culture” in which HR professionals worked 70-hour weeks to meet “ever-more complex demands”.  This is in the context of a lawsuit he’s pursuing for psychological harm, so there might be some exaggeration, and interestingly Goldman seems to be saying that he put all this pressure on himself, and they tried to stop him.  The case is scheduled for next year. (HR Magazine)

Citi is increasing paid parental leave to 16 weeks (plus eight weeks recovery leave for birth parents) in the USA, bringing it into line with the Street. (Bloomberg)

Citadel seems to have had a bad month, with its flagship fund down 0.8% while most of the other big multi-strats were up.  There’s no obvious explanation (short UK stocks, perhaps?), but it’s a reminder that the pod shop diversification model isn’t absolutely infallible. (Business Insider)

Everyone would probably agree that it’s not exactly sensible to compare your colleagues to Pol Pot or to call your boss “a vulgar name” but if it was a private email to someone else, does this amount to racial harassment?  A former employee of BNP Paribas is going to have his day in court arguing that he shouldn’t have been fired. (Bloomberg)

If you want to make mid-ranking VP money but have weekends reasonably free and only start work at 6am, why not manage a WalMart Supercenter?  There is a lot more walking and physical activity than the average banking job, but you can point at empty shelves where Snoop Dogg Cereal ought to be and say “pls fix” to your heart’s content. (WSJ)

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AUTHORDaniel Davies Insider Comment
  • @T
    @Takenobs
    6 June 2024

    On Citi, I sure hope the new bloke actually does a proper clean up job since the middle management at the Director, SVP and VP levels are still stocked full of clowns who are sitting around not doing much besides politicking.


    I wonder how he and Jane feel about certain folks in the Singapore marketing team taking trips with their agencies overseas for shooting off-site for brand ad campaigns and obviously not declaring it properly since everyone in Citi knows such practices have been frowned upon for a long time. Talk about ethics... Still much clean up to be done

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