Investment Banking: Counting John's Money

In the next two articles I’ll look into the investment banking industry – a certain ‘due diligence’ on my side as a Bocconi graduate. Today, I’ll discuss salaries of investment bankers, and a few days later I will present to you my view on the challenges the industry faces. We shall have some fun.

Let us get back to John. He’s now an analyst at some European investment bank. A nice promotion for John since last time I mentioned him, huh? He earns around 50,000 euros per year, which is around 4,200 a month. John then pays a horrendously high European income tax that nearly halves his monthly earning. He thus ends up with 2,200-2,500  euros/month net of all tax.

Dear reader, do you want to be in John’s shoes? Let’s see. As an investment banker, he rarely works less than 60 hours per week. In fact, if he worked this little, he’d be considered that guy in the corner who plays his solitaire when no one is looking. John is actually a good worker, and works 70 hours a week, which is an average for the industry. In February, year’s shortest month, he will work 280 hours. His effective salary (net of tax; who cares about the before-tax salary when no one ever really receives it on hands?) is thus 9 euros (roughly $12) at most.

This is not even double of what a McDonald’s cashier Bob receives for his ordinary job working a 40-hour week and daily receiving his meal from the hands of Ronald McDonald. The only one left to speak to John is the vending machine down the hallway. Finally, and it may be important for many of us, an investment banker hardly manages to have a social life of his own.

John is clearly better off when he receives his bonus. John’s bonus will typically amount to 10-50% of his yearly income. But don’t forget, we’re in Europe. Probably the guy’s name isn’t actually John, more like Johannes or Giovanni, but that’s not the point; another thing is that the European taxation system will kick in and take half of his money again. If distributed evenly over the entire year, the bonus amounts to around +1050 euros/month. This translates to roughly +3.7 euros to his hourly salary. In total it is at best 13 euros/hour ($18/hour).

Let’s round it up. Over at least 4-6 years, John paid thousands for his education, did one or a couple of internships and only stepped into the job market at the age of 23-26. He received the most low-paying job in an investment bank. He works inhumanly long hours, has barely any social life by the age of 25-28 and, if the bank does exceptionally well, earns just 2-3 times as much as a McDonald’s cashier does on an hourly basis. I’ll throw in some personal touch on this and ask, Is it something to live for? I’m sure some are getting excited at this. A popular vision is that it’s good as a starting point. My only open question is, why do you think you’re at a starting point when you’re already 25-28? Life can’t observe inflation forever.

The topic is absolutely interesting as most of us weigh picking up their careers in investment banks. As I said, I’ll return to the industry shortly after I publish this. I promise I’ll be less nonconformist in my next article, as I will speak of the challenges for the industry, since there’s evidence the industry has changed in the last 1-3 years. Let’s speak about that one of these days.