Jamie Dimon's stock at JPMorgan Chase is worth US$859m, the biggest holding of any bank boss. Photo / AP
Jamie Dimon's stock at JPMorgan Chase is worth US$859m, the biggest holding of any bank boss. Photo / AP
COMMENT:
Dick Fuld was trying to sound unworried. As he stood before a town hall meeting of Lehman Brothers bankers a few months before the financial crisis peaked, the chief executive was playing down the slide in the investment bank's share price.
Lehman was famous on Wall Street for payingstaff largely in stock, and encouraging them to buy significant amounts more, so it was a sensitive topic. When an audience member suggested Fuld buy some additional shares to prove his faith in the group, the veteran banker quipped that he did not have any spare money because his wife had been buying so much art.
"That went down like a lead balloon," one attendee recalled — all the more so when Lehman collapsed in the autumn of 2008, and much of its bankers' wealth was wiped out. Fuld himself is estimated to have lost stock once valued at close to US$900 million ($1.3 billion).
Today's bank chief executives have not been put off. At the encouragement of regulators, large chunks of the pay of senior bank staff is distributed as shares instead of cash, with the majority of that locked up for three years or more.
But data from Equilar, the executive pay specialists, shows a stark divide between the shareholdings of US bank chief executives and those of their European peers. On average, the bosses of the top five US global banks owned US$222m of stock as at the end of last year, more than 15 times the average of the top half-dozen global banks in Europe.
Jamie Dimon's stock at JPMorgan Chase is worth US$859m, the biggest holding of any bank boss, even before outstanding share options are included.
At the other extreme is Deutsche Bank's Christian Sewing, whose holding at the end of last year was worth just US$579,000.
Sewing has since been granted €2.4m ($4m) of shares in a bonus scheme and last week signalled he would buy a stream of shares in the market, estimated to amount to a likely €1.5m over the next three years or so.
Christian Sewing's holding at the end of last year was worth just US$579,000. Photo / AP
"I want to lead by example," he told analysts. "I want to have a personal stake in this company."
That will gradually return the share-owning culture to the senior ranks of Deutsche after years of bonuses waived due to scandals and missed targets. All the same, his first stock-buying step — following a radical restructuring announced this month — is minuscule compared with the gestures of rivals, even those in Europe.
Not for him the multimillion-dollar shows of confidence that UBS's Sergio Ermotti or UniCredit's Jean Pierre Mustier have engaged in. His purchase of Deutsche stock unveiled last week amounted to €22,000.
Critics will snipe that such a modest investment almost sends a negative signal. But, in part, it reflects a cautious approach given Germany's apparently uncomfortable relationship with share ownership. Former Deutsche Börse chief executive Carsten Kengeter was prosecuted over his purchase of shares under a company-mandated scheme, paying €4.75m in January to resolve the affair.
Other European countries are also unenthusiastic about share-based pay and executive share ownership. French banks, for example, not only pay senior staff relatively little; shareholdings are also slim.
And the EU authorities have, in effect, underpinned this ethos, with the post-crisis ban on senior bankers' bonuses (whether paid in cash or shares) exceeding twice their fixed pay.
There are other factors that hold back the share-based wealth of European bank chief executives versus their US peers. The Europeans are running banks that are struggling — amid lower interest rates and anaemic economic growth — relative to US rivals.
And nowhere is that clearer than in stock valuations. Deutsche's market capitalisation is a quarter of the book value of its net assets. JPMorgan's is 160 per cent.
In addition, many big US bank bosses have been in their jobs for more than a decade, compared with less than five years for several top European chief executives, giving them more time to build up significant shareholdings. Sewing has been in charge at Deutsche for less than 18 months, compared with Dimon's 14 years at the helm.
Owning shares in the company you run is clearly a positive. It aligns your interests with investors and buying stock signals confidence to the market. But however big the signal, blind faith is not enough. Just ask Dick Fuld.
