Dismal bonus outlook for British and US bankers

Bankers in New York and London are bracing for year-end bonuses that recruiters estimate are 30%-50% lower, while some may receive none at all as deal making sputters and economic gloom sets takes hold.

Financiers face disappointment when their compensation awards land in the first quarter, and thousands more of their colleagues could be laid off after hundreds were let go this year, say recruiters and compensation experts.

Last year, the industry handed out the biggest awards since 2006 as the economy roared back from the pandemic.

But this year, the pace of mergers & acquisitions and stock offerings slowed dramatically as debt-financing markets collapsed and stock-market volatility hit valuations. Recession seemed likelier as the year went on  with the Federal Reserve raising interest rates aggressively to tackle inflation, cooling economic activity.

For American MDs at Goldman Sachs Group, leaner times will probably translate to a 40% to 45% decrease in average compensation for 2022, according to data provided to Reuters by executive-search firm Sheffield Haworth.

At rival Morgan Stanley, average pay for senior bankers is expected to slide 35%-40% according to the report by Julian Bell, Sheffield Haworth’s head of the Americas and Natalie Machicao, a vice-president.

It’s a head-spinning reversal for dealmakers who racked up record profits for their firms last year and clinched eye-watering payouts for themselves.

“Flat is once again the new up this year, with most people just hoping not to see a significant cut in their compensation given how revenues for the industry as a whole have fallen,” said Stephane Rambosson, London-based cofounder of Vici Advisory, which specialises in hiring senior investment bankers.

At JPMorgan Chase, average total compensation for MDs in the US is forecast to drop 35% to 40%, and pay for senior bankers at Citigroup and Bank of America will probably shrink about 35% and 30%, respectively, according to Sheffield Haworth.

While the estimates reflect averages, payouts can vary widely depending on individual and group performance. The banks declined to comment.

MDs at Wall Street banks typically earn salaries of $350,000 to $600,000 a year, with bonuses of one or two times their base pay, according to Wall Street Prep, a company that helps aspiring bankers train for the industry. For top performers, incentive compensation can soar to millions of dollars.

The pay slump coincides with a fall in global equity underwriting of 66%, or $517bn in deal value, value of mergers & acquisitions sank 37% to $3.66-trillion by December 20, after hitting a record high of $5.9-trillion last year, the data shows.

The KBW Bank Index, which tracks major US bank stocks, has slumped about 26% this year.

The slowdown comes as the Fed and other central banks raise interest rates aggressively to tame inflation, moves that have curtailed economic activity.

Other risks including economic uncertainty spurred by the war in Ukraine, tense US-China relations and snarled supply chains fuelled volatility in certain markets.

Traders in fixed income, currencies and commodities (FICC) performed better than their investment banking colleagues. Compensation for FICC traders will probably rise slightly or stay flat, said Bell at Sheffield Haworth, while stock traders could see a small drop.

Barclays’s FICC traders doubled their revenues for the third quarter compared with last year’s, a bright spot that helped the bank beat expectations despite rising costs elsewhere, according its results announcement in October.

Worsening economic conditions have prompted firms including Morgan Stanley and Citigroup, to trim their workforces. After an initial round of layoffs this year, Goldman Sachs plans to cut thousands of employees in the new year to navigate a difficult environment, a source familiar with the matter said.

In the UK, most big firms are discussing and allocating bonuses now, with decisions not usually announced until early next year. Barclays and HSBC have already started to trim staff in underperforming areas of investment banking.

British banks are also under immense pressure to lift pay for their lower-earning staff in Britain as soaring inflation erodes household incomes. NatWest offered the bulk of its 41,500 staff in Britain a pay rise and one-off cash sum after a backlash from lower-paid employees who missed out earlier this year.

“We expect bonus pools to reduce compared with last year’s, and there will be no bonuses at some institutions,” said Sophie Scholes, a partner at leadership advisory firm Heidrick & Struggles in London. A situation that rewards star performers over their colleagues “will leave some disappointed”, she said.

Reuters