NEW YORK/LONDON, Dec 22 (Reuters) – New York and London bankers are bracing for end-of-year bonuses that recruiters estimate are 30% to 50% lower, while some may receive nothing at all as transactions collapse and economic gloom takes hold.
Financiers are disappointed when their severance comes in the first quarter, and thousands more of their colleagues could be laid off after hundreds were laid off this year, according to recruiters and compensation experts.
Last year, the industry handed out the biggest awards since 2006 as the economy recovered from the pandemic.
But this year, the pace of mergers and acquisitions and equity offerings has slowed significantly as debt financing markets have slumped and equity market volatility has hurt valuations. The outlook for a recession also increased as the year progressed, with the Federal Reserve aggressively raising interest rates to fight inflation, which dampened economic activity.
For U.S. chief executives at Goldman Sachs Group Inc (GS.N), lean times are likely to result in a 40% to 45% drop in average pay for 2022, according to data provided to Reuters by Sheffield Haworth, an executive search firm. .
At rival Morgan Stanley (MS.N), the average salary of senior bankers is expected to fall by 35% to 40% according to the report compiled by Julian Bell, Sheffield Haworth’s head of the Americas and Natalie Machicao, vice president. It’s a dizzying reversal for traders who racked up record profits for their companies last year and landed eye-watering payouts for themselves.
“‘Flat’ is the new ‘up’ again this year, with most people just hoping they won’t see a significant reduction in their compensation given the drop in revenue for the industry as a whole,” Stephane said. London-based co-founder Rambosson. of Vici Advisory, specializing in the recruitment of senior investment bankers.
At JPMorgan Chase & Co (JPM.N), the average total compensation of US chief executives is expected to fall 35% to 40%, and the compensation of senior bankers at Citigroup Inc (CN) and Bank of America Corp (BAC.N) likely to decline by around 35% and 30%, respectively, according to Sheffield Haworth.
Although estimates reflect averages, payouts can vary significantly based on individual and group performance.
Banks declined to comment.
Chief executives of Wall Street banks typically earn salaries of $350,000 to $600,000 a year, with bonuses of one or two times their base salary, according to Wall Street Prep, a firm that helps aspiring bankers train for industry. For the top performers, the incentive compensation can run into the millions of dollars.
Wage drop coincides with global equity underwriting down 66% to $517 billion in deal value, M&A value fell 37% to $3.66 trillion as of Dec 20 , after hitting a record high of $5.9 trillion last year, the data showed.
The KBW Banking Index (.BKX), which tracks major US banking stocks, has fallen about 26% this year.
The slowdown comes as the US Federal Reserve and other central banks are aggressively raising interest rates to rein in inflation, moves that have reduced economic activity.
Other risks, including economic uncertainty spurred by the war in Ukraine, strained US-China relations and tangled supply chains, fueled volatility in some markets.
Fixed Income, Currencies and Commodities (FICC) traders performed better than their investment banking colleagues. FICC traders’ pay is likely to rise slightly or remain stable, Bell told Sheffield Haworth, while stock traders could see a slight decline.
Barclays FICC traders doubled revenue in the third quarter from a year ago, a bright spot that helped the bank beat expectations despite rising costs elsewhere, according to its October results.
Deteriorating economic conditions have already prompted companies such as Morgan Stanley (MS.N) and Citigroup Inc (CN) to cut staff. 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 major companies are discussing and awarding bonuses now, with decisions usually not announced until early next year. Barclays and HSBC have already begun to cut staff in underperforming areas of investment banking.
UK banks are also under immense pressure to raise salaries for their low-income staff in Britain as soaring inflation erodes household incomes. NatWest has offered the bulk of its 41,500 employees in Britain a pay rise and a one-time cash payment after a backlash from the lowest-paid employees who ran out earlier this year.
“We expect bonus pools to shrink from last year, and there will be no bonuses at some institutions,” Sophie Scholes, a partner at leadership consultancy Heidrick & Struggles told London.
A situation that rewards stars rather than their colleagues “will leave some disappointed,” she said.
Reporting by Saeed Azhar and Lananh Nguyen in New York, Lawrence White in London; additional reporting by Iain Withers in London and Emma-Victoria Farr in Frankfurt; Editing by Anna Driver
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