Why do London bankers make so little compared to US bankers?

A first year analyst at a BB or EB in NYC or any tier 1 American city makes around $110k while an analyst in London at the same bank makes GBP 65k which is roughly $80k at current exchange, since bonuses are a % of base salaries it means that probably their bonuses will also be much lower. 

What explains this massive gap in compensation between American and British bankers? 

 
Controversial

The gap in compensation is explained for different reasons: 

- The cost of living in the UK is much lower than in any Tier 1 city in the States 

- The M&A and IB markets in the UK are very small compared to the same markets in America. Investment Banks don't generate much money in fees in the UK despite having a huge number of bankers in London 

- The small compensation in London is compensated with a much better WLB, IB in London is still not a 9 to 5 job, but IB professionals in the UK don't go through the grind as people in NYC do. Most bankers in London work around 60 - 65 hours and maybe 75 during live deals while bankers in America work around 90-100 hours, not to mention that in the UK they get 5 or 6 weeks of PTO

 

You definitely haven’t to the US either.
While rent in London is crazy expensive (mainly from all the non residents investing in RE), actual CoL is pretty reasonable for the size of the city. You can get a beer downtown for ~£5, a substantial sit-down lunch for one for under £15 (even know buffets for less than £10, £8 even),  a decent dress shirt for £35 if you buy 4. If you don’t mind living in Zone 4 and beyond or sharing a flat, you can def get to enjoy life and save.

Now, if you want to live like a rockstar then an afternoon in Mayfair can easily leave you penniless. 
 

I unfortunately did not feel the same when I lived in NYC or spoke to my buddies in SanFran. Only Chicago seems to be better than London CoL wise.

 

Where are these bankers only working 60 hours in London? 

 

US work culture is ass. Doesn't explain the difference, but I would 100% rather do my analyst stint in London rather than the US.

 

London has less deal flow and makes less money than NYC franchises. Makes sense they make less since they contribute to a smaller part of the pie. If you want to get paid strictly on performance/your ability to succeed in EMEA markets, recruit for a hedge fund. You can make more than your US counterparts if you're good.

 
Most Helpful

It’s not a question at the analyst level…

  • fee pool is smaller outside in US because clients don’t accept same fees. ECM fees still trending towards 7% in the US, in Europe 2% is much more normal. Same on financing, 30-40% discount.
  • banks have structurally higher costs in Europe because it’s a collection of xountries and infrastructure overlaps. So you’ll have a base in London, but also country bankers, local compliance, etc. In the US to do a sector deal you need the sector team + the back office of the bank. In Europe it’s same, but you add another layer of costs, for lower fee levels (cf above).
  • regulations on bank capital tend to drive returns a bit lower (in Europe), and interests have been lower (negative sovereign rates). That drives down bank income and compensation pool.
  • salaries have not adjusted to currency exchange rate variations. Not so long ago the GBP was 1.45 euro, 1.6 USD. It’s now 1.15 /1.30. So on a cross comparison it’s moved, but on local standard of living it probably is equivalent (i.e. A1 still earn 4-5x average country income)

It’s not about the cost of living of Us vs UK, it’s about what the banks can put in the compensation pool.

That being said, I have no idea how total comp actually compares - worth a check. As associate & VP I never felt like My US counterpart was making significant more; but I may be wrong

 

This is the right answer.

Also to add onto the first point, many clients in EMEA hate paying M&A fees whereas North American clients see it as a cost of doing business. So winning mandates usually takes more effort and when you win one, you get paid less and the client expects more work, which ties up resources - therefore revenue per head is lower.

 

This. And you can draw similar parallels to anywhere outside of US - EMEA, Asia, LATAM. Clients are generally reluctant to pay for M&A fees outside of the US, and most of the M&A creds (and some fees) is directly tied to ECM/DCM activity that the banks provide.

I've worked on a transaction where 2 European Banks were on an ECM matter that was tied to a M&A deal that we were running for the same European client. Even though the European Banks got "credit" for the M&A  deal, we were the main advisers (and drove 90% of the M&A process): our fees for ~5 months of work was about 3x what they made for about a year or so of their engagement. The client saw us as a necessity/'cost" of doing the M&A deal for a global target, even though we have no balance sheet capabilities (at an EB).

 

I got your point. Had read a statistical report on M&A advisory deals in different global regions. So over there, I saw that literally, all the banks were pulling off 250+ deals a year, consistently from 2017-2021 in the USA, whereas in the UK, Rothschild advised on 175 deals in 2021, the highest in the last five years. So this explains why  London bankers are a bit underpaid than their American counterparts. 

However, a handful of banks have advised on 50+ M&A deals consistently every year. Such as Rothschild, GS and JPM. Do you mind that Rothschild pulls off 100 deals in the UK every year, whereas the latter two advise something 70-80 (even a bit less for JPM)  

So do you think that fresh graduates are pretty safe from getting laid off from these three banks in their two years stint at the bank?

 

I think the biggest factor is actually currency. The UK does not get extra pay in GBP to account for currency depreciation vs USD. Back in ‘09 £1 was worth $1.57, now it’s like $1.25 lol. That’s a 20% discount. US bulge brackets are now £70K base for first years ($87.5K) vs $110k in US. In other words also a 20% discount pretty much perfectly in line with the currency.

 

Because London banks wouldn't give a shit what American banks pay because that's not their competition for talent, other industries in London are. Other industries in London pay much less, with McKinsey paying ~50k for its consultants, compared to 70k in banking. If you take Big 4 or Tech into consideration, it's almost double the average salaries there.

 

Voluptate tenetur ab ipsam vero sed. Velit deserunt et perspiciatis aut magnam. Sit et alias unde ipsum.

Voluptate excepturi eos repellendus adipisci doloribus. Corrupti neque explicabo et repellendus sed minima vero. Velit fuga reprehenderit quasi iure. Enim quam eum porro quae ab. Vel vel praesentium exercitationem nisi cupiditate. Exercitationem maxime eum consequatur doloremque. Quas illo consequuntur quas vel dignissimos eius doloribus dolor.

Aut quo omnis nesciunt nulla odio. Dicta vel alias dolores aliquid ut. Rerum esse aut officia distinctio repudiandae. Illo repellat voluptatibus praesentium.

Career Advancement Opportunities

March 2024 Investment Banking

  • Jefferies & Company 02 99.4%
  • Goldman Sachs 19 98.8%
  • Harris Williams & Co. (++) 98.3%
  • Lazard Freres 02 97.7%
  • JPMorgan Chase 03 97.1%

Overall Employee Satisfaction

March 2024 Investment Banking

  • Harris Williams & Co. 18 99.4%
  • JPMorgan Chase 10 98.8%
  • Lazard Freres 05 98.3%
  • Morgan Stanley 07 97.7%
  • William Blair 03 97.1%

Professional Growth Opportunities

March 2024 Investment Banking

  • Lazard Freres 01 99.4%
  • Jefferies & Company 02 98.8%
  • Goldman Sachs 17 98.3%
  • Moelis & Company 07 97.7%
  • JPMorgan Chase 05 97.1%

Total Avg Compensation

March 2024 Investment Banking

  • Director/MD (5) $648
  • Vice President (19) $385
  • Associates (86) $261
  • 3rd+ Year Analyst (13) $181
  • Intern/Summer Associate (33) $170
  • 2nd Year Analyst (66) $168
  • 1st Year Analyst (202) $159
  • Intern/Summer Analyst (144) $101
notes
16 IB Interviews Notes

“... there’s no excuse to not take advantage of the resources out there available to you. Best value for your $ are the...”

Leaderboard

1
redever's picture
redever
99.2
2
Secyh62's picture
Secyh62
99.0
3
Betsy Massar's picture
Betsy Massar
99.0
4
BankonBanking's picture
BankonBanking
99.0
5
dosk17's picture
dosk17
98.9
6
DrApeman's picture
DrApeman
98.9
7
kanon's picture
kanon
98.9
8
CompBanker's picture
CompBanker
98.9
9
GameTheory's picture
GameTheory
98.9
10
Jamoldo's picture
Jamoldo
98.8
success
From 10 rejections to 1 dream investment banking internship

“... I believe it was the single biggest reason why I ended up with an offer...”