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Happy Friday everybody. I'm Alex alongside Paul Sweeney. This is Bloomberg Intelligence Radio. We bring you all the top news and business, economics and finance through our lens by Bloomberg Intelligence folks. They cover 2,000 companies and 130 industries worldwide every day. We also take a look at the Bloomberg Big Take story. It's a deep dive into some of the pressing financial, political and economic issues of our time. You can check it out on the terminal or also bloomberg.com/bigtake. And today it's about banker bonuses. Wall Street bonuses often come in the form of restricted stock units. So how did that actually perform? It's dicey, it's unpredictable. Do you actually make money off of those things? Well, joining us now as one of the authors of the story, Laura Nunan, Bloomberg News Finance reporter. Welcome to your story, Laura.
Thank you. So the story basically looked at the restricted shares over a period from the financial crisis in 2008. And the question we want to ask is how does the number on the letter you get on bonus day compare to how much you actually get by the time those shares vest? So we assumed certain things and what we showed was that in the case of the US banks, you usually end up making more. In the case of the European banks, you usually end up making less. And in some cases the numbers were quite severe. So there was one case we looked at where Bank of America people who got bonuses in 2011-2012, they ended up, if they had sold them as they could over a three-year period, they would have got $270,000 for every $100,000 in the letter. So that's a big upside. Off the end of the spectrum, the Credit Suisse bankers who got bonuses towards the end of Credit Suisse's life would have seen the money effectively disappear when Credit Suisse collapsed in 2023.
Are we seeing investment banks pay more of the bonus in stock or RSUs, less cash? Is that a trend?
It's been a trend since the financial crisis, which is why we started the analysis there. So the idea was to align the risk taking of the people who are making bonuses with the longer term fate of the banks that they work for. Within the EU, there are rules about this. So you have to get a certain percentage of your bonus in these kind of restricted instruments, and the percentage that you get is higher depending on how senior you are. So it's certainly something the banks have been doing for risk management. They're also doing it in terms of retention. And in terms of if you are a really strong bank and your share price is expected to appreciate and you want people to stay working for you, it makes sense to give them things which kind of align their fate with the fate of the bank because it makes them stay, which is what banks are trying to do, especially as they face more competition for staff from other industries like tech, like some of the non-listed banks and the private markets industry.
Paul's here shaking his head. I'm just going to keep my mouth shut here because I think about the Europeans and their pay structure. And you don't like that, Paul?
Not a ridiculous. That's why there's no global investment bank coming out of Europe. That's why there's no technology coming out of Europe. I mean, it's a fair point.
It's okay. Paul used to be a recovering former M&A media banker, so it's near and dear to his heart. There are a lot of issues in European investment banks, and we will be telling you more about those in different stories. There are some unique structural issues around bank pay that do limit their capacity to attract some people. It's going to be really interesting in the UK market now because the UK has just rolled off some of those rules introduced in the EU. The UK obviously is outside the EU now. They are liberating things here. It's going to be a really interesting market to see how people respond in terms of do people want to work for a UBS or BNP Paribas within the London operations now, or would they be even more likely to go to a Goldman Sachs or JP Morgan where you can now get really big bonuses?
Can I just ask about the whole Credit Suisse debacle there? What happened to all of those bonuses and payouts when you take a look at Deutsche Bank and Credit Suisse?
So Deutsche Bank has just had a very troubled share price situation. I mean, if you look at the share price of Deutsche since the financial crisis, it has had a very, very sharp decline over that period. So I knew people who had Deutsche bonuses and they were like, 'Oh, this will be the best trade I've ever made,' because you get a lot of shares when your share price is low to get you to that dollar number, and they expected the share price to recover. The share price did not recover. It fell further and further and further, so they just had a very tough time share price wise. Credit Suisse was interesting because if you look back over the analysis, there were some years when actually Credit Suisse did really well. That was because in the immediate aftermath of the crisis, kind of 2010, 2011, 2012, Credit Suisse was actually very strong. Where it came crashing down to Earth was in the more recent past when those shares effectively got zeroed by the UBS takeover. There's a lot of nuance there. What I should also say is for this analysis, we looked at 12 banks, the 12 banks who most commonly give bonuses. However, we have a tool for the terminal users. You can go on that, you can click on it, you can enter any list of companies in the world, you can enter any kind of vesting structure you might have, any dates, and you can see how your life would have been different if you got your bonus at a different bank or if you made different career choices when you were like 25, or how your colleagues down the road have done. So there is a lot of fun that you can have if you're into playing with Excel sheets. You're in for a fun weekend.
I guess you have some great stuff in here about how the best year for bank bonuses was 2020-2021 because depressed values and the banks did well after that. Share prices were not good.
Yes, so some parts of it are kind of counterintuitive. But the thing about depressed values is they have to recover. So I've seen people make some pretty bad decisions thinking that things will always rebound to some kind of norm. And the one thing we've learned in European banks since the financial crisis is that mean reversion hasn't really been a thing in the way people thought it was going to be. Some business models turned out to be structurally flawed, structurally fatally flawed in the case of Credit Suisse. So you can't always assume that it's going to bounce back.
All right, Laura, thanks a lot. We're going to leave it there. Thank you very much, Laura Nunan, Bloomberg News Finance reporter, joining us on banker bonuses.
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One stock on the move to the upside is Baker Hughes. It is the best performing stock in the energy sector within the S&P. Baker Hughes is an oil services company. It has two main lines. One is literally oil services, so if you're an oil driller, you call Baker to help you drill the oil. The other is industrial and energy technology, that's much more related to sort of the future of what the business will be. It encapsulates LNG export facilities, which they are a huge provider of. And this stock has crushed its competition. You look at a comp chart, Baker Hughes versus say Halliburton and SLB, they've crushed it over the last year. They reported earnings last night that beat very high estimates, and yet the stock is still up by about 6%. We're pleased to have the CEO, president and chairman Lorenzo Simonelli joining us now. Lorenzo, good to chat with you. I gave you a nice setup there. What do you think that you have? Don't say that again, Alex. What do you have that your other peers don't in your best estimation?
Well Alex, it's great to be with you and very pleased with the results of 2024. I think it really talks to the portfolio and the capabilities of Baker Hughes. And as you mentioned, we have these two segments: one being oilfield services and equipment, and the other being industrial and energy technology. That capability of really being focused on where there's less cyclicality, less volatility. As you look at oilfield services and equipment, we're much more on the production side weighted and looking at the mature asset solutions. And when you look at the industrial energy technology, really on the liquefaction side, the gas infrastructure, and also new energy. We exceeded the guidance for new energy or orders intake in 2024, looking for another robust 2025. And it really comes down to the differentiation in the portfolio. We're really not just an oilfield services company. We're an industrial energy technology company. We've created a portfolio that's unique within the space.
All right, Lorenzo. As I've been telling Alex, who is the true expert here in Bloomberg for energy, I have watched season one of Landman, so I now consider myself an oil and gas expert. Just putting that in front of you there. Love to get your thoughts, Lorenzo, on the implications of this new administration coming up. How much of a change in policy do you and your peers expect out of a Trump administration?
We've seen administrations in the past and changes. Obviously we had a Trump administration previously. As we look at the outlook, we think that a number of our customers and E&Ps are going to continue to be disciplined. And we're seeing activity levels and production, at least in the US, slightly increasing. As we look at international, we see flattish year-over-year. But as we look at the macro side, over the course of the next few years and the next decade, an increasing demand for energy. That means it's an all of the above strategy. It's going to be oil, gas, it's going to be more renewables. We see a good outlook on the macro side for Baker Hughes in that environment.
He does talk about Landman all the time. So to break that down a little bit, I was talking to Mike Wirth, CEO of Chevron earlier, and basically his theme in the permian is to produce more but with less, so less capex. It feels like the read through of that for the oil services business wouldn't be great for you guys. Walk me through what you're seeing from the big oil players.
As I mentioned, the big oil players, they're going to take the opportunity of benefiting from the consolidation and the acreage that they're bringing on. And what Mike is mentioning is really the aspect of doing more with what you have. That's why Baker Hughes is well suited because we're more on the production side. If you look at our portfolio, greater than 50% is associated with the production. That's the electrical submersible pumps, it's the chemicals, it's the ability to really take more out of the mature assets. That's been a big focus of Baker Hughes over the course of the last few years. So as the intensity continues to increase on doing more with less, it actually serves the aspect of our production side and focus that we have on the mature assets.
I'm glad you brought that up because that's kind of what Mike Wirth was saying too, that the technology just gets so much better that you can actually continue to get more oil, lower the cycle cost and lower the cycle time. Switching to your IET business, so Industrials and Energy Technology business, that's where you have your LNG export facilities. That's where the growth is going to come from. Your numbers for the first quarter and for all of this year are just trouncing estimates. Who is your big customer for this?
We've got the large LNG players obviously within North America, and we're looking forward to a number of FIDs taking place in 2025 overall globally for LNG. We see 100 MTPA of new projects between 2024 and 2026. Over the course of this year, there's still about 80 MTPA to go internationally as well as in the US. But it's not just LNG. When you look at gas infrastructure and the associated infrastructure around pipelines, compression to be able to move the molecule, the LNG players like Venture Global, which we announced yesterday, you've got Cheniere, but you've got the majors when you think of Qatar Gas as well as ExxonMobil with the projects that they have. So we play across the portfolio with these key customers. But it's not just LNG. 70% of the addressable market opportunity for us in IET over the course of the next few years is outside of LNG, and that's a $140 billion opportunity.
