The brilliant investment bankers make their money by properly selecting their investments, right? So lets see what kind of talent needs to be retained so desperately by the banks.
It turns out, that trading is not the major source of income for most banks. Here is where the money is made:
Income Sources for Banks 20061
The income of the six banks2 I looked at came on an average of 41% from commissions and fees, and 22% in interest. Which happen to be the traditional – and rather boring – activities of banks.
On average only 29% were made in trading. I chose 2006 because it is the last year all of the banks were in the positive. Bank of America is the outlier here, it was not an investment bank and made its money almost exclusively from traditional banking.
In case you are wondering how much of this net-revenue goes into financing compensation (salaries, bonuses) of that talent, this is what the compensation-to-net-revenue ratio for 2006 looks like:
Compensation to Net-revenue 2006
In 2008 for some banks the bottom fell out of their trading income. UBS burned more than CHF 25 bln (which was a bit more than offset by the income in fees, 22 bln, and interest, 6 bln) so that in the end the net-revenue was 796 mln (actually it was 797, but they dropped a million, so the figures don’t add up in their re-stated balance sheet.
Credit Suisse almost looks good in comparision with ‘only’ CHF 9.8 bln burnt.
In numbers this looks like this:
Income figures for 2008
In terms of the compensation-to-net-revenue ratio this looks like this:
Compensation to Net-revenue 2008
1Yes, the numbers DO add up! This is just an OpenOffice display thing. I only display two digits after the decimal point.
2Datasource is the annual report of the respective bank.