JP Morgan announces big increase in bonuses

JP Morgan has kicked off the investment banking world’s reporting season. And if its bonuses are anything to go by, the Wall Street bank may have just given the green light to British rivals to let the good times roll.

The results were pretty stellar across the board but it was the money JP Morgan set aside for bonuses that was always going to draw the most attention. And the numbers are mind-boggling.

In total, the group has allocated £4.2 billion for total staff compensation in the fourth quarter, up nearly 30 per cent on the year ago figure.

Of that – and here’s the controversial bit – pay and bonuses for its investment bankers – nearly 8,000 of whom are based in London – more than trebled to £1.1 billion in the last three months of 2010. Despite the fact that, for the whole year, investment banking revenues were actually down.

For the full year, it means the American bank – the only one to emerge relatively unscathed after the financial crisis – has paid a whopping £17.7 billion in staff pay and perks.

Cameron’s problem

And therein lies the problem for David Cameron and George Osborne. At least so the argument goes…

If there are nearly 8,000 investment bankers in the City of London being paid whopping bonuses by a New York headquartered bank (which incidentally just announced it was to build its brand new, multimillion pound European headquarters here in London), it makes it very difficult for its British counterparts not to follow suit. The worry being that if they don’t, the RBS bankers will simply trot off down the road and get jobs with JP Morgan – or any other US investment bank in London – that does.

But I’ve long believed – and continue to do so – that there are several flaws with this argument. It pre-supposes, for example, that JP Morgan would want to take on hundreds of discontented RBS or Lloyds employees (or, presumably, both).

You can make an argument it might hire some, but it’s not a charity with open doors to welcome all bankers miffed that their bonuses are lower than they were a year ago. And anyway, if JP Morgan wants to hire a star banker from RBS, won’t it just ring him up and do it anyway? Regardless of what bonus he or she is or isn’t paid? Isn’t that precisely how it works in the world of high finance?

Yes, there’s the flipside argument that the star banker proactively ups and leaves RBS because their bonus has been cut. But given the reputational damage that’s occurred at RBS and Lloyds, my guess is a lot of the big stars will have gone anyway. It’s a harder case to prove for Barclays, which has a much stronger investment bank in Barclays Capital than either ABN Amro (RBS’s now infamous foray into investment banking) or HBOS (Lloyds’ equally infamous, opportunisitic purchase).

Yet, nonetheless, the likes of Stephen Hester, the boss of RBS and the outgoing Eric Daniels at Lloyds will no doubt breathe a sigh of relief today at the size of JP Morgan’s bonus pool. And know, politically, it gives them just a little bit more wiggle room.