Banker Bonuses drop by 50%

Wall Street banks have eliminated bonuses for top dealmakers, causing tens of thousands of angry bankers to scramble for new positions as layoffs in the sector accelerate.

According to people with knowledge of the situation, banks have taken a ruthless approach to bonuses for senior investment bankers in the wake of a decline in dealmaking following 2021’s massive payouts.

Sources told Financial News that senior executives at Goldman Sachs have seen their bonuses decrease by 40-50%. This is the steepest decline among the top banks. Morgan Stanley has reduced variable compensation for managing directors in investment banking by 30-40%, while Citigroup has done the same for senior bankers, according to sources familiar with the situation.

Investment banker incentives at JPMorgan have decreased by up to 30 percent, according to sources. The Bank of America sends out bonuses on January 25th.

“No one is surprised, given the revenue decline and how rivals are paying,” said a top dealmaker at a U.S. company. “However, the numbers are startlingly low, particularly in comparison to the 2021 surge.”

“This extra round has been exceptionally difficult. Stephane Rambosson, co-founder of headhunters Vici Advisory, stated, “Many workers have received nothing, and we’ve heard that senior bankers have received bonuses of £50,000, which is a small percentage of their usual compensation.”

Citigroup, Goldman Sachs, JPMorgan, and Morgan Stanley all declined to comment on incentive payouts through their respective spokespeople.

Phillippa O’Connor, who oversees PwC’s UK rewards business, remarked, “With significantly smaller pools, banks have had to make difficult spending decisions.” “They have prioritised stars and reduced other expenditures. What effect these decisions will have on possible movement remains to be seen.”

Wall Street banks have reported steep declines in investment banking fees in 2022 due to rising interest rates, uncertain markets, and stagnant financing opportunities.

Citigroup’s fees decreased by 53% annually, while investment banking revenue at Goldman Sachs, JPMorgan, and Morgan Stanley fell by approximately 50%. Annually, Bank of America’s dealmaking fees decreased by 41%.

M&A fees have held up quite well at large US banks, but equity capital markets revenue at the five top Wall Street investment banks fell by at least 70%.

According to bankers and headhunters, the hardest hit sector is comprised of senior dealmakers. Analysts and associates have experienced lesser bonus reductions, with mid-level employees receiving 15-25% less than previous year.

Chris Connors from Wall Street compensation consultants Johnson Associates remarked, “This is a very tough compensation year, as banks are coping with very disappointing investment banking results, but greater performance in trading and wealth management.”

European banks will begin disclosing bonuses to employees beginning in February. Bloomberg reported that Credit Suisse, which is likely to suffer a $1.6bn loss for the final three months of 2022, will lower its bonus pool by 50% compared to last year.

In an effort to retain talent, the bank is also providing senior bankers earning over $250,000 more cash up front. Before taxes, bankers who leave within three years will be required to repay the entire bonus.

According to bankers, Deutsche Bank and Barclays are anticipated to decrease rewards to dealmakers by up to 30 percent. According to the Financial Times, Deutsche’s investment banking bonuses could fall by much to 40 percent.

In a typical year, a bad bonus payout might prompt dealmakers to seek new employment. An spike in doughnut incentives, according to bankers, is a clear indication that banks are attempting to force off employees without initiating additional layoffs.

Barclays, Citigroup, Deutsche Bank, Goldman Sachs, Nomura, and Morgan Stanley are among the major banks that have eliminated dealmakers due to a decline in revenues. Goldman’s 3,200 employee losses in January are the most of any major investment bank, while Credit Suisse’s 9,000 job cuts over the next three years are the result of an ongoing restructuring.

Connors stated, “Some professionals will earn no incentive, but it will be a big minority.” In an effort to retain their best personnel, star performers will be prioritised. As a result of layoffs and a hiring freeze, voluntary turnover is decreasing.

Senior dealmakers anticipate a revival in M&A and stock capital markets activity in the second half of 2023, but bankers fear a second round of layoffs later this year if transactions do not materialise.

“Everyone is anticipating a turnaround in the second quarter, but if there are additional interest rate hikes or if the economic picture worsens, it may be a very narrow window,” said a senior financial sponsors banker.

Rambosson remarked, “The majority of individuals remain in their current position due to a lack of alternatives.” “Moving is also risky, as it could result in layoffs every few months if business activity does not improve.”