Private Equity Wars, IBD Pay Trends & Santander's U.S. Dream

Hello, welcome back to The Deal Room, and we have 4 super interesting stories to bring to you today. Number 1, you're probably going to be the most interested in, and that is because we're going to talk, Stephen and I, about 2025 investment banker salary and bonus report. So there's some clarity over that. What does it look like? And, you know, how do you disappoint a banker with higher bonuses, for example? And so we'll shape some context around that exactly, but this is a really important topic because this is a key driver of why a lot of people want to work in this industry. So really keen to get Stephen, your thoughts on that. And you know, you've got your gilet on, so you're in full banker mode now. And then we're going to talk about 3 other articles, all appearing in the FT in the past week. One is to do with private equity, and there's a bit of a tussle going on with 2 very familiar names in that space. So why is that happening? And then Santander, not probably a destination that grads might think of straight out of the gate when they think about internships and graduate placements, but Santander is looking to spread its wings and move to the States, risking the American dream. Is that possible? What's the precedent for, let's say, European name trying to break into the back door of the JP Morgan, Goldman Sachs kind of land? And then finally, you might have read already a big M&A deal that was announced just a few weeks ago, Honda and Nissan's $58 billion merger. Close to collapse. So that's taken quite a severe turn for the bad side of that deal being concluded. And we'll have a look at that as well. So Stephen, what's the situation then? What are we looking at with this pay and salary side of things?

Yeah, thank you so much, Anthony. And I'm just going to start off this episode with a bit of a shout out to Aaron, Aaron Edmonds, who's helped me put together some of this research. Actually, you know, I'm going to try and keep this to our normal 30 minutes, but quite frankly, I could go on for hours. I'm not going to, you know, you guys need to get on with your life, but fantastic research and 4 really interesting stories. And we're going to start with this headline, 2025 Investment Banker Salary and Bonus Report: How to Disappoint Bankers with Higher Bonuses. Bankers, they are never happy. So the high level here is that bankers anticipated this massive payday because 2024 was a pretty good year, right? 30% increase in global IB revenue, and in fact it was 37%, and this was in part due to a slight bounce back in M&A, but also more flow transactions across debt capital markets and equity capital markets. But total compensation only increased by 10 to 15%, far below revenue growth expectations, and we're going to dive into why that might be the case or why that was the case. But just to give you a couple of numbers. So in this report, uh, an analyst, and again, this is your typical analyst in an investment bank in the US, base salary between $100,000 and $125,000, total compensation between $160,000 and $210,000. Timeframe for promotion, 2 to 3 years. When you get up to that associate level, we're talking $175,000 to $225,000 base salary, and then the total compensation really broadens from $275K all the way up to almost half a million dollars a year as an associate. So again, look, we're not going to be crying any tears for this kind of, this grumble that revenue's gone up, but compensation hasn't quite gone up as commensurately.

I just clocked you're talking dollars here. So if we're a UK-based Listener, what, how should I be converting that? Because is there a bit of a premium if you are New York based?

Yeah, you're absolutely right. So, you know, if I see analyst base salary, $100,000 to $125,000, I would say analyst base salary in the UK, $60,000 to $85,000, maybe £55,000 to £80,000. Oh, sorry, £1,000. Apologies. So yeah, you definitely would have a New York premium, but, and you know this as well as I do, there is no, there is a significant premium to living in New York as well. So I think it probably works out. But why didn't bonuses match revenue growth? There's a number of different factors at play. So, one is that there were higher base salaries. So salaries have been raised every single year for junior bankers, in part to attract talent that would otherwise be going maybe to more tech jobs or maybe more startup jobs or maybe even hedge fund jobs. So, they've had to raise their base salary and therefore the total compensation is pretty high, but the bonuses are smaller relative to that base salary. Makes sense. Maybe a lot of the revenue that was generated was, was capital markets revenue. So, equity capital markets and debt capital markets revenue surged. As I mentioned, but they're slightly lower margin compared to the big block— blockbuster M&A deals. Bankers are going to get mega bonuses when they hit some marquee M&A multibillion-dollar transactions. That doesn't really happen in the equity capital markets and debt capital markets flow type products. One interesting piece of analysis that I saw was that maybe bonuses have been kept low because there may not be quite as much of a superfluity of alternative job options. So there's a bit of a theory that tech firms, hedge funds, private equity aren't maybe hiring quite so aggressively. So the requirement to incentivize junior bankers to stay by hitting them with a massive bonus and keeping them desperate for their next adrenaline fix of money Maybe we don't need to do that so much. So there's a number of different factors at play. We've spoken in the past about a little bit of maybe overhiring by the elite boutiques, taking significant numbers from the bulge brackets. Maybe everyone's just starting to get a little bit more sober as revenues do start to increase, but maybe not by as much as was previously predicted.

Yeah, I will ask you in a moment about do we have any figures around elite boutiques, just to give context? Because I know this is a decision that young people will consciously have to make if they want to go down this route. Before I was going to ask that, I remember a couple of months ago, maybe even longer, there was, um, the UK, for example, lifting bonus caps because there was a lot of caps that were put in place through regulation, and there's arguments that that should be removed because we want, you know, the best talent and this sort of stuff. Isn't it better for a business to pay up bigger bonuses and have base salaries as low as possible? But is that now not possible because you've now set the bottom floor of salaries high, but now people want bonuses on top? So what bankers want is never really going to be met.

What bankers want is never really going to be met. And I think this policy of capping bankers' bonuses, obviously from an optics perspective, is very attractive. And when Liz Truss and Kwasi Kwarteng came in and tried to remove that cap, it was a, you know, a PR or a politics disaster. But you're absolutely right. You're absolutely right. This is a global market for talent. And if you're capped on bonuses, you're going to raise your base, which is actually much more, it's much more of a drag on these highly volatile industries that rely on a relatively small kind of core cost centre, which, but pays really, really well when Managing directors do extremely well. So yes, the base salary has crept up in the UK and also in the US, and therefore maybe that's tempered the kind of animal spirits of these bonuses, which isn't necessarily right for the industry.

Okay. I said I would ask, so I'll ask. Elite boutiques. So what numbers do you have from them?

Okay, here we go. So elite boutiques, and you know, we, you know, the type, the Evercores, the Rothschilds, the Centrevues, the PJs are paying significantly higher bonuses. So a PJT year one top-ranked associate earns over $400K. Bulge brackets, they're still not bad. You're not going to be, you know, eating cornflakes for dinner. Bulge brackets pay around $300,000 at an associate level. So you really are, you know, you, I think maybe when I was graduating and, uh, you know, my early years in my career, you would've thought, JP's going to pay the best. Goldman Sachs is going to pay the best. I'm going to try and get there if I want to get paid the most. But actually this is starting to flip around and the elite boutiques who are just so focused on investment banking and maybe don't have the kind of all-company budget review and managing director pay scale that maybe the bulge brackets that have to satisfy more stakeholders within their organisation. Maybe it's a little bit more of a free ride or a free rein. to award higher associate salaries and analyst salaries. So get yourself to Evercore.

And finally, I was just going to ask, um, sort of two things. One about where does MDs fit into this at their level, but also before that, if you cast your mind back to when you were just graduating, like what were the perceptions of working in finance and what were the alternate routes you could have taken in order to obtain that type of salary potential, for example? Because I'm assuming going off to work at Google was probably not as popular 20 years ago as it would have been today.

Yeah, it's a, it's a really good question. Look, I graduated in 2010 and I was part of a university where if you wanted to make any sort of money, you'd be a banker, a management consultant, or a corporate lawyer, and maybe an accountant, but probably not. So, you know, the majority of my peers did something like that. A couple of people went in to work at Google and obviously, have done extremely well because, you know, they got share options back in 2010. Good for them. So, it really was one of 3 or 4 different industries. And when you'd go for your drinks after work as a 21, 22-year-old, we'd all roughly be talking about the same thing, but just maybe from a slightly different angle. Obviously, you know, for, to the betterment of graduates, I think there's many more opportunities to get on a fast track to an interesting, an interesting career.

Hmm. So that idea then of compensation volatility, you know, the predictability of pay rises, because I think that's something that people will be conscious of, like progression, both professionally, but also in their remuneration. So is that more or less volatile then?

So it's, it's really interesting. And I think that young people need to be aware of the fact that most professions are relatively stable. You know, there's bonus volatility at an analyst or an associate level, and you can go home and grumble about the fact that your bonus wasn't quite as high as you wanted it to be. But it tends to be that you don't really have any dependents and you haven't bought your first house, so it doesn't matter as much. But about the same time in almost everyone's career, if they're climbing some form of ladder, whether it's in technology or startups or finance, you move from being on a very, very stable salary scale, knowing what the next stage is to having to really, really earn your stripes. And that often happens early 30s to mid-30s where you go from being a worker to being a creator, a creator of value. Obviously this happens in law, it happens in startups, it happens everywhere. And that's where the volatility comes in. And from a banking perspective, MDs, you know, they'll get paid a relatively low, relatively low base salary and they can, you know, 10x it if they have a wonderful year in the same way as corporate lawyers, as soon as they become partners and they get to split the spoils of the upside from that law firm can really, really start making a lot of money. But you can also fall off the train as well. There's not that security that you would have in certain other professions. Yeah.

And just a conversation, I won't say who with, but we were having I was speaking with someone yesterday, you know, if there is someone in like, for example, a PE space, they might not deploy any cash and there is nothing. There's nothing earned over prolonged periods. It could be the case. So yeah.

Yeah. Well, look, PE firms still get their management fees. So even if they're not deploying their capital, the great, the great private equity scam. But anyway, no, we won't talk about that.

Well, let's move on and let's talk about private equity because you can see what I did there. There we go. Bain Capital, KKR. The headline here that I had was that they're locked in a fierce $4 billion battle for control of Fujisoft, who I guess not many people would have heard of in the first place.

Yeah, this is an absolute classic happening multiple thousands of miles away, but with names that you probably have heard of. So this is I mean, I called it a PE Titan brawl in plain sight. And it really goes against what you would consider to be the pretty staid corporate culture, very respectful corporate culture that you have in Japan. And in fact, private equity firms didn't really have a presence in Japan until quite recently because it just wasn't the done thing to be activist, to be aggressive, and maybe even to be hostile. So here's, here's what happened. It's a brilliant private equity story, almost reminiscent of Barbarians at the Gate, that great 1980s book that we recommend reading. So it started with KKR getting really interested in this company, Fujisoft. Fujisoft's an interesting, slightly old school, not particularly high technology, technology name, but it sits on a property portfolio of over a billion dollars, which means it's really easy to borrow against. It's really, really easy to borrow against, secured against that property, which is always nice. But it's also got a lot of really good engineers. It's a little bit of a low margin business, but a bit of a turnaround story. So very attractive from a private equity perspective. And actually this whole saga started with an activist investor, 3D Investment Partners, taking a stake in Fujisoft and basically saying, Hey, Fujisoft, we think that you're undervalued in the market. We want a take private. We want you to get bought by a private equity firm, go off the stock markets, and we think that we can realize a lot more value that way. Through that process, KKR effectively bought 3D Investment Partners' stake, which they were more than happy to sell because they believed in this play to go private. And they lodged themselves into this deal. So KKR, by the way, with the board's approval. So the board's on KKR's side. KKR acquire 3D Investment Partners' stake in Fujisoft and then launch a takeover bid, right? So this is fine. This is all not particularly— the board approves, the board are on board with this plan. They had an activist, KKR took them out. All okay. But then Bain Capital come in as quote unquote the white knight in this transaction. So remember we spoke about this a few months ago. A white knight is another corporate that comes in to save a company from the clutches of an unattractive buyer, in this case KKR. But the board liked KKR. So who thought that KKR was unattractive? Well, it turns out it was the Fujisoft family. Who own a bunch of shares, you know, the old school dynasty that founded this company, they were in cahoots with Bain to bring Bain in at an offer price and make an offer for the business that was assumed to blow KKR out the water. So you've got in one side of the ring, you've got Bain and the family. In the other side of the ring, you've got KKR and the board. And they are pulling no punches. KKR is basically saying, look, you've been bought in to inflate the offer price, right? To the detriment of us. We don't even think, by the way, Bain, you have the money. You haven't proved that you've got the capital to buy this business for $4.3 billion. So you're just acting as this inflator to try and get us out of the situation. And I put in my notes, a really nice graph of the share price going up when KKR bids for Fujisoft, going up when Bain announces counterbid, going up when KKR raises offer, going up again when Bain goes quote unquote hostile. Because remember, they don't have board approval. They're only working with the family. So it really is this barbarians at the gate style story. It looks, by the way, like KKI are going to get this. They've actually offered more than Bain. It looks like Bain are going to come away slightly with their tail between their legs. But it's an, again, it's a really interesting case study, very much worth reading. We can't go into all the details here, but if you're interested in private equity and the machinations of ego and power and money, but it's also very interesting in the context of Japan and how ripe Japan is for, for private equity as well.

I'm just getting, uh, Sun Tzu in terms of The Art of War. Again, anyone who hasn't read those basic principles of the, the ancient military strategy and tactics for negotiation, again, not only fitting with this, but also Piers and I were talking about this, the, the Trump-China situation and the tactics around tariffs. It feels like Uh, that would be recommended reading at this point.

Absolutely. I'm just gonna take a quote from Jun, uh, Susaka, who's chief executive officer of, uh, Nippon Sanyo, a, uh, Japanese private equity firm. This is all indicative of that code of conduct that we thought existed in Japan, which is that you don't do things Western style. That conventional wisdom is now thrown out the water. So this is kind of landmark. Uh, we expect a little bit of hostile stuff and a little bit of, you know, uh, egos and whatever in the West. Yes, but we haven't seen this before in Japan. Hmm.

It's, uh, I can just envisage like a nightclub and Mr. Bain walks in and Mr. KKR, and they sit at a table with all the other people stood around them and they have a face-to-face conversation.

Yeah. I wish it was the case, but unfortunately that's, that's, that's where lawyers get, you know, they, they make any story a little bit more dull. There's a nice layer of lawyers in between any, in between any mover and shaker, but just to end this story. On Japan as an attractive place for private equity. If you combine the weak yen and low borrowing costs, it really is, and some pretty underperforming companies. So Joseph Bey, co-CEO of KKR, said at a forum in Hong Kong this week, if you look at our global private equity returns in every single country around the world, our best returns are in Japan. We're still very bullish on this part of the world. So again, we do tend to have this Trump-centric, US-centric view, but things are happening and returns are really, really high in Japan relative to the rest of the world at the moment.

Cool. Well, two more stories to go. So let's move on to Banco Santander. And yeah, I remember reading about this, it must be about 12 months ago, about how they were perhaps a strategy pivot and they really wanted to go after the US and So what's this story here then? What's happening with this American push and how likely do you see it actually materializing?

Yeah, I mean, so I think that every company, whether it's a bank or otherwise, that is not involved in the US in a significant way, dreams of cracking the US, right? And it might go all the way back to kind of Hollywood. You make it in the US and it's such a big addressable market. It's such a big financial system. That if you can get a foothold, the rewards are plentiful. And it's a lovely thing to put in a slide deck, but so much harder to do in reality because the US is a very well-banked, well-covered system from a finance perspective. And I was just reading a couple of articles earlier on, and I was looking at some of the other European megabanks' forays into the US. So there was Barclays, 'Big boy balance sheet.' So that was easy. We are bringing our quote unquote big boy balance sheets to the US and we're going to do some business. That went pretty flat. Or Deutsche Bank is a flow monster. You ever heard the phrase flow monster before in your trading days?

Are these actual—

No, no, no. This is what they're calling them. Yeah. But obviously they failed. And we spoke last week about HSBC pulling out of the US from an IBD perspective. So it is much easier said than done for a European bank to really, really make a foothold and make a challenge in the US. But look, Santander, big European bank, big Spanish bank, I think the second or third biggest from market capitalization in the eurozone, um, trying to capitalize on Credit Suisse's collapse, hiring lots of former employees, offering lucrative pay packages, and actually moving out of the UK, which is deemed to be, and I quote the Financial Times here, it is deemed to be a moribund UK economy. Moribund basically means dead. So, not a show of faith from the FT towards the UK economy, but the chief executive, Anna Bottin, says that Santander's UK business is not for sale. But they have behind the scenes rejected a lowball offer from Barclays for the business. So we've got two kind of stories circling around here. We've got Santander maybe pulling out of the UK after a significant investment, but they just don't see the growth. In fact, their profitability shrunk by about 20% in the UK last year. And then what are they going to do with that kind of attention? Try and get into the US. We'll see whether it happens.

Well, there's one trump card that Santander might have, and perhaps I can give you a quote and you can guess who I'm referring to, which is obviously the World Economic Forum, Davos just happened, all the movers and shakers there, including of course, as you said, Santander's executive chair, Anna Botin. Someone said to her, congratulations. I know very much about your bank and you've done a fantastic job. Who's that? Who would have said such a line?

It's actually not a bad impression. I expected it to be worse. I quite like your leader of the free world's impression. Yeah. So, you know, Donald Trump really likes the bank, thinks it's a fantastic bank, but you know what, that's somewhat a throwaway comment. But you know what, Santander does have some, does have some really, really strong elements to its business. Obviously really strong in terms of South America, really strong in terms of South Africa, Europe. Maybe it can bring a kind of global banking approach to its US operations. As we said, really focusing on hiring top talent from Credit Suisse. For all its problems, Credit Suisse did have some brilliant high-quality investment bankers. So yeah, and you've got the endorsement from the big man. So, you know, it, we'll see. It's really hard to know. It's really, really difficult to expand into the US when you've got the big beasts like JP Morgan and Bank of America, their presence and really, really dominant.

Okay. And finally then, a big M&A deal on the verge of collapse. So Honda-Nissan, what's the latest with that one?

Yeah, so we actually never reported on this story because it kind of happened over Christmas and it was a real big one, but I think there was scepticism or an air of caution with all commentators going, yeah, this, this feels maybe like a non-starter. So the original deal that was proposed at the end of the year was that Honda and Nissan, they announced discussions to form a joint holding company aiming to create, I think, the fourth largest automaker. By volume of cars. And that joint holding company is the key story here. Now, fast forward to February 2025. Obviously lots has been going on in the background, but the two companies' fortunes have taken very, very different paths over the last few years. And what might a few years ago from a share price and a profitability perspective have been a merger of equals is now very much not. Now Honda's market cap is actually over 5 times higher than Nissan's. So, you know, they're both storied Japanese car manufacturers, but when you've got one company that's 5.5 times bigger than another, from a market cap perspective, this is not going to be a joint holding company. This is not going to be a merger of equals. And what effectively happened recently and this is the story that we were reporting on from last week is that the Honda board basically provided a take it or leave it. You will become a subsidiary of Honda, and we will work together, but we are the adults in the room. We are the party here, and you are going to sit underneath us. Now, there's reason for this, right? You know, Honda, there's benefits to them combining with Nissan because economies of scale is such an important factor in car manufacturing, especially in this EV revolution. Might as well join forces to create EV power plants and battery factories and things like that. But it's Nissan that's really struggling. In fact, it reported a 94% plunge in first half year net income in November, right? So go back to The Art of War, go back to Negotiation 101. Negotiate when you have leverage. Don't when you don't, because you're going to get screwed. And this is exactly what's happening to Nissan. And in fact, Mitsubishi might come in and team up with Nissan. Renault own a big chunk of Nissan, but they want to get rid of it. Weirdly enough, organizations like Foxconn, The world's provider and manufacturer of iPhones is getting interested in a potential tie-up with Nissan. So it's kind of gone from this beautiful $58 billion tie-up with two of the big boys in Japanese auto manufacturing to Nissan scrabbling around to do a deal with Foxconn. So again, really interesting strategically, but also from a kind of leverage and who is the bigger party, who has got the power in a particular relationship.

You mentioned the EV there, and I was just thinking about the geography of some of these names. So you talk about BYD, and then you talk about Tesla, for example. I mean, I never hear EV and Nissan and Honda mentioned a great deal. So can they actually, I mean, it's kind of, they're doing so bad already at the moment in the case of Nissan. And that's with EVs being quite out of favor in the current context. So— Yeah.

I, look, I think, I think, you know, there, there is going to continue, you know, maybe EVs are slightly out of favor relative to where they were 2 or 3 years ago. But I think we still are positioning as an auto industry towards a predominantly EV future. So it's right that Honda and Nissan should be thinking about joining forces in order to have the scale and the balance sheet and the ability to borrow to really get into the EV game. But it's clear, as you said, they're miles behind. They're miles behind Toyota, they're miles behind the German manufacturers, and they're a lot of miles behind BYD and Tesla. So it's a long road to recovery. It's just a— I'll leave you with this little fact that on reaction of the news of the breakup of these talks, Honda's shares surged 8.2%. Nissan shares fell 4.9%. So you know how the market has reacted. Honda were Nissan's last chance. So the breakup of these talks, breakdown of these talks, Nissan falls off a cliff, and the Honda shareholders are like, phew, I'm pretty glad we didn't have to deal with that.

So surely though, there is something, and I don't know Nissan's business well enough, within Nissan that now makes it a viable target. Though, for others to swoop in. They must have some IP or something.

Yeah, absolutely. I mean, they're a large car manufacturer that is still profitable and it's got a lot of assets that could be extremely attractive. And, you know, as I said, when we teach M&A, a company is, you know, an acquisition is either good or bad value depending on how much you pay. And because Nissan has been so hammered in the market, its market capitalization has got down to a stage that suddenly more parties with maybe less potential synergies are starting to think, hey, I could benefit from that manufacturing capability or that asset base of that company, the likes of Foxconn, et cetera.

Yeah. Look out, Gordon Gekko's coming. Uh, okay. We'll wrap it up there. Thank you, Steven. Fascinating stuff as always. And any questions at all, feel free to drop us a comment. Wherever we share the podcast. I know on Spotify you can, and we always try our best to reply to everyone. All right, have a great week ahead. Thank you, Stephen.

Thanks, Ant.