The chief executives of some of Wall Street’s largest dealmaking companies enjoyed gains of tens of millions of dollars in 2020 thanks to surging share prices while the heads of banks with big retail operations saw their paper fortunes shrink, highlighting contrasting performances across the industry.
Investment banks including Morgan Stanley, Goldman Sachs and Jefferies and boutique advisory firms including PJT came out ahead in a tumultuous year — the result of higher trading revenues and fees from the flurry of corporate fundraising and restructuring activity.
The divergent fortunes are personified by two men with the biggest stakes in their companies: Rich Handler, chief executive of Jefferies, and Jamie Dimon of JPMorgan Chase, the top US bank by assets and owner of a large retail operation.
Mr Handler made the biggest paper gain of Wall Street chief executives. The value of his shares rose almost $54m in a year when his bank’s share price gained 14.5 per cent. NYSE-listed Jefferies Financial Group reported a 49 per cent increase in revenues for the first nine months of the year, driven by record profits and earnings at its investment bank.
The Jefferies chief began the year with shares worth more than $370m, a stake second only to Mr Dimon, who had more than $1.1bn of JPMorgan stock at the start of the year through a combination of personal ownership and interests of his close family.
Mr Dimon suffered paper losses of just over $100m on those shares last year, as low interest rates and high loan loss charges battered US retail banks. JPMorgan’s earnings for the first nine months were 39 per cent lower than a year earlier, even as its investment bank benefited from buoyant market conditions.
The outsize gains and losses partly reflect the two executives’ commitment to holding shares in their companies, their long tenure and their pay structures. Mr Handler has worked at Jefferies for 30 years and never sold shares beyond those necessary to pay taxes and sales for charity. Mr Dimon joined JPMorgan 20 years ago and used the bank’s low share price as an opportunity to buy more stock on the open market in both 2012 and 2016.
In a year when the S&P 500 index of US shares ended up 13 per cent, investment banking shares outperformed. PJT Partners was up 65 per cent, while Houlihan Lokey was up 37 per cent. Even the much larger Morgan Stanley finished 34 per cent higher.
PJT chief Paul Taubman is personally up about $13.7m on paper based on the PJT shares he held at the start of the year, as disclosed to the Securities and Exchange Commission. Morgan Stanley’s James Gorman is up $24.3m on the same measure.
Other Wall Street executives have relatively small direct holdings in their company, such as former UBS banker Ken Moelis, who gained just $6m despite the 46 per cent jump in the Moelis & Co share price. Mr Moelis’s gain is based on his indirect holdings in the company, since he does not hold significant direct exposure. The banker also has stakes in other Moelis-related entities; his spokeswoman declined to give details on how these had performed in 2020.
The disparity between investment banking’s bumper year and the difficulty facing the broader lenders is feeding into the thinking about bonuses for 2020, which many banks are likely to try to limit given uncertainty over the outlook.
Wall Street pay expert Alan Johnson said companies with strong share price rises could point to that performance in discussions with traders, bankers and executives.
“They’ll certainly say, the shares we gave you in prior years are going to be worth a lot more than we ever thought,” said Mr Johnson, who runs the consultancy Johnson Associates. “Cynics will say, ‘When the shares were down, you didn’t give us more’.”
At big universal banks such as JPMorgan, Bank of America and Citigroup, the gap between the performance of investment banking and trading and the retail operations was the biggest it had been in a decade, Mr Johnson said. Banks are also conscious of the optics of big payouts when the global economy is so stricken.
“That’s going to hold down the pay of senior executives of the big banks because that is very, very visible,” Mr Johnson said.
More broadly, Mr Johnson expects traders to enjoy increases of about 30 per cent to their bonuses, lagging their divisions’ performance, while investment bankers who work on debt and equity fundraisings will be up about 10 per cent.
Representatives for Mr Dimon, Mr Taubman, Mr Gorman and Mr Handler declined to comment on the changes in their net worth or their broader pay strategies for staff in 2020.