Bonus haggling on Wall Street and in the City begins as the old year ends. It will be particularly fraught this time. Big banks would look bad lavishing huge sums on top performers. The pandemic has devastated swaths of the world economy and left millions unemployed. Traders and financiers who carried their units to one of the best years on record are not assured a bumper payout.
Lloyds, the UK high-street lender, has cancelled all staff bonuses precisely because it has no investment bank. In contrast, Barclays is preparing to increase payouts after a strong year for its own deal-doing unit.
In the US, JPMorgan, Bank of America, Citigroup, Goldman Sachs and Morgan Stanley collectively took in over $111bn in revenue from their investment banks during the first nine months of 2020. That is a 33 per cent surge.
Traders and underwriters will be the only desks to see a bump in bonuses this year, claims a survey from compensation consultant Johnson Associates. Equity traders could get a 25 per cent increase, while bond traders may do 45 per cent better.
That is overly optimistic. Star operators are likely to receive rewards smaller than their contributions to profitability. Employers need to keep a lid on costs.
Profits at JPMorgan, BoA and Citi have been weighed down by the weakness of retail banking. Fears of an impending wave of consumer and commercial defaults prompted the three banks to set aside nearly $48bn for potential bad loans.
Retail banking woe is just the flipside of a coin that has landed heads up for investment bankers. The pandemic triggered panicked corporate financings and a surge in trading as investors responded to asset price volatility underpinned by trillions in state economic support.
That means bonuses will remain contentious even at Morgan Stanley and Goldman, which have limited exposure to retail banking. Besides, top management will seize on any rationale to keep a lid on the pay of employees. But in calibrating their disgust, bankers should remember an awkward truth: their own analysts normally discount them as a drag on valuations.
The Lex team is interested in hearing more from readers. Please tell us what you think of the forces dictating bonus policies in the comments section below.
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