Bloomberg News

Rothschild Loses to Evercore as Boutique Left Off FSA Bonus List

June 14, 2011

June 14 (Bloomberg) -- Evercore Partners Inc. and Greenhill and Co. will be able to pay employees guaranteed bonuses forbidden at rival deal advisers such as NM Rothschild & Sons Ltd., after escaping scrutiny from the U.K. Financial Services Authority.

Evercore, founded by former U.S. Deputy Treasury Secretary Roger Altman, is among companies offering financial advice such as Gleacher Shacklock LLP and Moelis & Co. that aren’t on a list of 2,776 firms covered by FSA bonus rules. Competitors including Rothschild, New York-based Perella Weinberg Partners LP and Lazard Ltd. are on the list, obtained by Bloomberg News after a Freedom of Information request.

The guidelines apply to firms taking risks with their own cash or that of clients, leading to the exclusion of advisory firms that may not manage money in the U.K. Companies covered by the rules, which must be implemented by next month, can’t offer multiyear guaranteed bonuses and will only be able to pay one- year guarantees in “exceptional circumstances,” the FSA said.

“This represents a major competitive disadvantage,” John Purcell, founder of recruitment firm Purcell & Company, said. “For bankers making the switch from bulge bracket to boutique there is always a risk that it won’t work out. Offering a two- year guarantee will help compensate for the lack of security.”

The rules enact guidelines approved by European Union regulators last year to curb excessive risk-taking. The FSA expanded the firms covered by bonus rules a hundredfold from the 27 biggest banks to more than 2,700 entities last year to conform to the European guidelines.

‘Delighted’ Firms

Joseph Eyre, FSA spokesman, declined to comment, as did officials at New York-based Moelis, Perella Weinberg, Rothschild, Evercore, Greenhill, Lazard and London-based Gleacher Shacklock.

“In the advisory world, guarantees have become par for the course for bankers at managing director level and above,” John Axworthy, a partner at recruitment firm J. Robert Scott in London, said in a telephone interview. “Firms that are not on the FSA’s list will be delighted.”

The agency applied the guidelines from the EU to its revised bonus rules and separated financial firms into four groups based on their size.

The FSA didn’t provide details of the tiers it uses to categorize companies because the information “could prejudice the commercial interests of the firms concerned” and lead to “speculation about the capital resources of the firms,” the regulator’s information unit said in an e-mail.

Commercial Interests

“We consider the need to protect the commercial interests of the firms outweighs the public interest in disclosing proportionality tiers each firm falls within,” the FSA said.

Senior employees at banks with more than 1 billion pounds ($1.6 billion) in capital comprise the top tier and are subject to the toughest rules on share retention and cash payouts. As much as 60 percent of a bonus payout for risk-takers and senior managers must be deferred for at least three years, and half of the amount must be in the form of shares.

Small banks, building societies and hedge funds face fewer rules on share awards, disclosure and bonus deferrals, under the FSA rules. Unlike the largest financial institutions, they don’t need to set up special remuneration committees.

The expanded FSA list includes commodities firms such as Glencore Commodities and Armajaro Derivatives, high frequency traders at Getco Europe, U.K. arms of foreign banks such as Bank of India and Bank of China as well as Methodist Chapel Aid, a lender that refrains from investing in tobacco, gambling or alcohol companies, according to its website.

Some financial advisors “rallied against the rules” when they were drafted last year, Jake Green, a financial services lawyer at Ashurst LLP said in a telephone interview in London. “They’ve obviously lost the battle.”

--Editor: Anthony Aarons, Edward Evans

To contact the reporter on this story: Ben Moshinsky in London at bmoshinsky@bloomberg.net.

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net; Edward Evans at eevans3@bloomberg.net


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