Finance

Lionel Laurent is a Bloomberg Gadfly columnist covering finance and markets. He previously worked at Reuters and Forbes.

Banking is so yesterday, at least according to BBVA's chairman, Francisco Gonzalez. “BBVA will be a software company in the future,” he said last year, in a nod to his booming number of mobile customers.

Banking Discount
BBVA trades more like a bank than a software company
Source: Bloomberg

It’s only fitting, then, that the Spanish lender should lead the charge against the European Union’s limits on bank bonuses -- not on behalf of its traders, of course, but its tech stars.

In Monday's Financial Times, Juan Lopez Carretero, BBVA's head of digital M&A, bemoaned the fact that the company risks losing potential acquisition targets to U.S. rivals because of the cap, which applies to top earners whether they’re trading junk bonds or designing funky apps.

It’s absolutely right that banks’ ability to hire tech talent is a primary concern in an era of slow growth, negative rates and scarce investment-banking revenue -- but it’s wrong to target bonus rules.

It might be more useful for Carretero to demonstrate his new acquisitions are paying off in terms of profit and shareholder value before worrying about how to loosen purse-strings further.

In any case, the bonus cap is hardly watertight: European banks are free to ask shareholders for permission to pay bonuses that are up to double the size of an employee's base pay. If BBVA thinks it can make a compelling case for paying a bonus of as much as 2 million euros to a star with a salary of 1 million euros, it can do so.

So where there’s a will to overpay, there’s still a way.

But why overpay in the first place? Average remuneration for technology employees has yet to overtake that for bankers, according to data from Emolument -- and there’s scant evidence tech workers expect a bonus of more than their base salary.

Silicon Spending
U.S. pay surveys show rising wages and bonuses in tech -- but nothing to topple Wall Street yet
Source: Dice Tech Salary Survey

According to the most recent survey by Dice, a U.S. technology recruitment firm, the average salary for tech staff was $96,370 and the average bonus $10,194. That’s small potatoes next to the average Wall Street bonus of $146,200.

Yes, a bank could expect to pay much more for employees when acquiring a hot new start-up -- so-called “acqui-hires” have been known to cost upwards of $1 million per top engineer -– but this phenomenon appears to have already peaked, as Bloomberg News recently reported. Tech companies, faced with a more discriminating environment for venture-capital funding, are reassessing the merits of paying top dollar for founders who tend not to stick around.

It's likely Carretero's point is one of principle rather than a real obstacle to hiring today. It may just seem unfair to categorize a coder and a trader both as material risk-takers.

But as clumsy as the European Banking Authority’s definition is, there’s a certain blunt logic to it. If a tech developer is in the top 0.3 percent of a bank’s earners, or paid an objectively big salary, there’s bound to be some risk involved. Peer-to-peer lending, high-frequency trading, quant strategies, such as those used by Long-Term Capital Management, have all proven to be a risky blend of tech and finance. Exempting tech staff from the bonus caps might have unintended consequences.

BBVA's Tech Talent
The Spanish bank's digital push has paid off in recent years
Source: Capgemini

To be fair, BBVA has done very well in expanding its technology footprint, buying U.S. Mobile bank Simple, Finland's Holvi and a stake in the U.K.'s Atom Bank. With valuations and funding on the wane, there’s little need for big paydays. More pressing is whether BBVA and others can make a profit from such acquisitions. That's what will decide whether banks will pay bonuses to match.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Lionel Laurent in London at llaurent2@bloomberg.net

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