Bonus bankers shun stock market

Patrick Hosking12 April 2012

INVESTMENT bankers shun the share market when it comes to investing their own bonuses, according to a private banker who looks after the personal finances of 3,600 of the City's highest fliers.

While almost all investment banks officially predict that stock markets will rise strongly this year, their star employees are investing in hedge funds, property and capital-guaranteed funds.

Tim Pethybridge, head of the executive client division at Coutts, said: 'Clients are still a bit cautious about straight equities.'

Bonuses of up to several million pounds for star 'rainmakers' are flooding into City workers' bank accounts - employees in bonds, futures and options and IT picking up the lion's share this year.

Their avoidance of equities contrasts starkly with the official views of their investment bank employers, which virtually all predict a healthy rise in share prices this year. Morgan Stanley forecasts the FTSE 100 index will rise from the current level of about 5100 to 6000 by the year end; CSFB has pencilled in 5900 and UBS Warburg 5750.

Hedge funds - exotic investments that are usually uncorrellated with conventional share market performance - have been very popular with City clients, said Pethybridge. So too have structured products, which are sometimes called customised deposits - investments where the capital is guaranteed but which have a 'kicker' allowing the investor to bet on a plethora of financial outcomes from interest rate movements to currency changes.

Good-quality London property is also still popular, according to Pethybridge, despite the sliding prices of some luxury West End houses.

Bonuses this year are being paid partly in deferred shares in the employer bank. Recipients are thus heavily exposed to the share market and are keen to diversify the cash portion of their bonuses. 'At the top end of the market very few people get pure cash,' said Pethybridge. His division advises 6,000 executives, 60% of them City professionals. The minimum investment is £250,000.

While City bonuses are down this year - by £400m in December alone, according to the Office for National Statistics last week - the downturn is not quite as pronounced as thought. UBS, for example, the Swiss bank that owns UBS Warburg, reported last week that its overall bonus costs were down by only 23% in respect of the 2001 year.

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