📰 This Banker Made 3X More Than His CEO

Morning! Welcome to the first formal issue of Finance Focus.

Today’s article is all about putting in work and getting paid what you deserve. If you didn’t think it was possible for employees to get paid more than their CEOs you might want to think again.

Finance careers, typically revenue generating roles, are results-driven. This means the more money you make for the company, the more money you’ll get to take home as part of your compensation package. That sounds pretty fair if you ask me.

From a company perspective it makes total sense to look after your star performers. After all, the alternative is to risk losing them to the competition.

Keep in mind an investment bank, for example, will always be the biggest winner when it comes to bank vs employee. Think of them like the casino. The house always wins. The odds are stacked in their favour. They’re only giving out a small percentage of the total profits to employees, and keeping the rest for themselves. That’s the bargaining power they hold. And I guess that’s just how capitalism works.

However, sometimes a star trader or banker might have an epiphany and realise they’re being taken advantage of. In these situations people go off and start their own hedge fund / investment firm and become ‘the house’ i.e. their own little casino. A topic for next time.

Here’s the article. Scroll down to read my key takeaways, thoughts and opinions on the topic.

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Nomura Hands British Banker Record $12mn Pay Award

TL;DR: Nomura has given a British banker (Christopher Willcox) a record pay package of $12 million for his role as head of the wholesale banking division (at Nomura this is basically the investment banking division, trading business and wealth management), which significantly contributed to the company's recovery and profit growth. This package is more than triple the amount received by the bank’s chief executive, Kentaro Okuda.

Willcox's leadership helped Nomura achieve its first annual profit increase since 2020, driven by a surge in stock trading. This record compensation aligns his pay with that of some top European banking executives, although it still trails behind many US bankers.

For context the CEOs of banks like Morgan Stanley, Goldman Sachs and JPMorgan all receive pay packages in the $25mn to $35mn range.

5 Key Takeaways:

1. Record Pay Package for Christopher Willcox: Christopher Willcox, leading Nomura’s wholesale banking division, received a $12 million pay package for the year ending in March, marking the highest remuneration for an executive officer at the Japanese group. This amount is more than triple what the bank's CEO Kentaro Okuda earned in the same period.

2. Results Driven Contribution: Willcox's division, which includes trading, investment banking, and international wealth management, played a crucial role in Nomura’s return to profit growth. The bank reported a net income of ¥166 billion ($1.04 billion) in its most recent financial year, a significant increase from ¥93 billion the previous year.

3. Surge in Stock Trading: A surge in stock trading during the first three months of the year, with Japanese stocks reaching their highest levels since the 1980s bubble, contributed to Nomura’s improved financial performance and a 45% increase in its share price this year.

4. Strategic Leadership and Background: Willcox, who joined Nomura in 2021, has a notable career history, including leadership roles at JPMorgan and Citigroup. His appointment and strategic leadership were part of CEO Okuda's efforts to revive the bank after challenges, including significant trading losses ($3bn!) from the Archegos Capital collapse.

5. Focus on Stable Revenues and Cost Cuts: CEO Okuda is working to reduce Nomura's reliance on volatile trading revenues and shift towards more stable businesses like wealth management (it feels like every investment bank is doing this nowadays). He’s also targeting cost cuts in the wholesale banking division to improve the bank’s return on equity (you do this to keep shareholders happy). The pay at Nomura is determined by considering roles, responsibilities, and both domestic and international regulations and standards.

My Personal Thoughts:

1. Leadership and Compensation: Christopher Willcox's record pay package at Nomura underscores the significant impact effective leadership can have on a company's performance. It's interesting to see how Nomura values the contributions of its executives, especially given the competitive nature of the banking industry. The substantial compensation reflects not only Willcox's success but also the high stakes involved in turning around a major financial institution.

2. Strategic Shifts: The shift from volatile trading revenues to more stable income streams like wealth management is a strategic move that many financial institutions are making. This transition aims to provide a more predictable and sustainable revenue stream. Why? Typically, clients in wealth management (high net worth individuals) and asset management (pension funds, insurance companies, etc.) have longer term investment horizons which means stable management fee revenues for a long period of time. These businesses are less impacted by market moves compared to the trading division, for example.

3. Global Banking Landscape: The comparison of executive pay between Nomura and its Western counterparts, such as those in the US and Europe, highlights the different compensation cultures and market expectations across regions. It’s a reminder of the global nature of banking and how practices in one part of the world can influence others. Something worth considering if you’re ever open to working in different regions. Pay in the US is a lot better than pay in the UK. But, you’ll probably get a better work/life balance (if it even exists) in the UK as opposed to the US. Also, keep in mind New York is ridiculously expensive compared to London.

4. Impact of Market Conditions: The article sheds light on how external market conditions, such as the surge in stock trading and economic turbulence, directly affect banking profitability and strategy. Nomura's ability to capitalise on these conditions speaks to its agility and the effectiveness of its leadership.

5. Challenges and Resilience: The mention of past difficulties, including the Archegos losses (where Nomura lost $3bn when Archegos collapsed) and the banking crisis, underscores the resilience required in the financial sector. Nomura's journey through these challenges and its subsequent recovery is a testament to the importance of strong leadership, strategic foresight, and adaptability. Where many banks would have been merged, acquired or filed for bankruptcy, Nomura has shown the strength and resilience to come out on top.

That’s all for today. Have a good weekend and I’ll see you in the next issue!

Afzal

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