Jonathan Hoffman: The former Lehman Brothers banker who is still fighting for his bonus

Florida, with its white sandy beaches and sweltering climate, is not the typical habitat of the Wall Street financier. Yet it is where one of the Street’s biggest earners, Jonathan Hoffman, made a fortune trading US Treasury bonds in the years before the global financial crisis in 2008.

While most Lehman Brothers traders worked at the bank’s Manhattan headquarters, Mr Hoffman was permitted to base himself at the firm’s Miami office.

The returns were as hot as the weather.

In 2005 Mr Hoffman, the son of a Philadelphia sweets manufacturer, earned $14.8m (£10.1m). That rose to $20m in 2006, $31m in 2007 and $77m in 2008. But Mr Hoffman doesn’t seem to be looking back fondly on this period in his life. Instead, the 42-year-old is suing the estate of his former employer, which went bust in 2008, in a Manhattan court, seeking $83m in unpaid bonuses.

That’s an eye-catching legal claim in itself, given that the Lehman bankruptcy, which was a consequence of its own management’s reckless attitude to risk, sent the Western world into its most serious economic tailspin since the Great Depression.

Still more astonishing is that Barclays snapped up Lehman’s trading business in 2009 and hired Mr Hoffman with a special $83m signing-on bonus. The trustees of the Lehman estate say the payment from the British bank was intended to compensate Mr Hoffman for the loss of those Lehman bonuses, and that he is now, quite shamelessly, trying to get paid twice. “Double dipping” is how a spokesman for James Giddens, the Lehman bankruptcy trustee, has described it.

Mr Hoffman, however, insists the Barclays signing-on bonus was unrelated to anything he had done for Lehman and was merely the price of retaining his lucrative trading services. He claims that he could actually have earned more money going to work for hedge funds. A ruling is expected in July, with the outcome likely to hinge on legal arguments over why Barclays made the $83m payment and technical questions over whether Mr Hoffman’s contract changed. But the case has already become a spectacular demonstration for some that Wall Street’s entitlement culture persists, a full seven years after the financial crisis.

Further, it has shone a rare ray of light on the vast sums that a select group of privileged traders at investment banks can earn. Under new rules introduced by the UK regulatory authorities in the wake of the crisis, the pay of senior executives has to be fully revealed. But there is no legal obligation to publish the remuneration of employees such as Mr Hoffman.

Leaving aside the issue of the $83m bonus, the court case shows that Mr Hoffman carried on receiving astronomical levels of remuneration while at Barclays. He earned about $183m between 2009 and 2013. That’s more than even Bob Diamond, the former Barclays chief executive who drove through the 2009 acquisition of Lehman.

The case has also shed some light on the mechanism by which traders are paid. Mr Hoffman’s contract with Barclays apparently entitled him to 12 per cent of the first $25m of trading profits he made and 14 per cent on anything above that figure. “I never had a losing quarter, never had a losing year,” Mr Hoffman told the court.

But is such a remuneration structure reasonable? Mr Hoffman’s lawyer, Douglas Baumstein, has claimed his client generated about $1.25bn in profits for Barclays between 2009 and 2013. Yet financial experts say these figures, taken in isolation, are meaningless and that one must look to the amount of risk taken by individual traders to judge their performance.

“People say, ‘Oh, you made £200m for the bank, £200m for the [trading] desk’. Yes, but how much did you risk?” says one former investment banker who now manages assets for clients. “Did you risk a trillion, two trillion? If so those returns are actually minuscule.”

Mr Hoffman claims he was typically allocated between $200m and $400m of Lehmans’ capital to trade with. He has not disclosed an equivalent figure for Barclays, but it is likely to have been a similar amount. City analysts say in that in the wake of the financial crisis traders still held the whip hand over managers and could effectively dictate terms. “Nobody wanted to disrupt things” says one former employee of a large City of London bank. “There was a huge amount of loyalty – all driven by money”

But has the tide now turned at Barclays? Mr Diamond was ejected in 2012 in the wake of the Libor rate-rigging scandal. His two lieutenants, Rich Ricci and Skip McGee, have also now departed. The bank’s new chief executive, Antony Jenkins, after some initial resistance, has laid out plans to downsize the investment bank, where returns on equity have collapsed in recent years. The returns from the fixed-income, commodities and currencies department, where Mr Hoffman would have worked, have been especially poor.

Barclays actually gives more detail on employee remuneration than many other banks. Its latest annual report shows that three employees were paid more than £5m in 2014, down from eight in 2013. But unless they go to court one day, like Mr Hoffman, we have no way of knowing just how much more than £5m those select few employees are paid each year – or even what they do.

As for Mr Hoffman, he left Barclays in 2013. Despite his claims about intense market demand for his services he has not – yet – been snapped up by another bank or a hedge fund. At the moment he invests his own money from an office in Philadelphia. One thing is certain: if he wins his seven-year-old bonus battle in July, Mr Hoffman will have even more capital to put to work.