Bankers in New York City and London have been bracing themselves for year-end bonuses. Recruiters believe that they will be 30% to 50% less, and some might not receive any at all, as economic gloom prevails and dealmaking slows down.
Financial professionals face disappointment when compensation awards are not received in the first quarter. Thousands more could lose their jobs after several hundred were laid off this year according to compensation specialists and recruiters.
The industry presented the largest awards in 2006, as the economy recovered from the pandemic.
However, mergers and acquisitions slowed dramatically this year due to the collapse of debt markets and volatility in stock markets. As the Federal Reserve increased interest rates aggressively to combat inflation and cooling economic activity, the outlook for recession also grew.
According to Sheffield Haworth data, a top executive recruitment company, the U.S. management directors of Goldman Sachs Group Inc. (GS.N), a reduction in compensation will likely translate into a decrease of 40% to 45% for their average pay for 2022.
According to the report by Julian Bell (Sheffield Haworth’s Americas Head) and Natalie Machicao (a vice president), the average salary for Morgan Stanley (MS.N) senior bankers will drop 35% to 40%, according to the report.
Dealmakers, who made record profits last year for their companies and received eye-watering payments for themselves, are now in a headspinning reverse.
Stephane Rambosson (London-based founder of Vici Advisory), which specializes on hiring investment bankers, stated that “Flat” is again the new up’ in this year. Most people are just hoping to not see a substantial cut in their salaries given the decline in industry revenues.
According to Sheffield Haworth, the average compensation of U.S. managing director at JPMorgan Chase & Co. (JPM.N) is expected to fall 35% to 40% and that of senior bankers at Bank of America Corp. (BAC.N).
Although the average payouts are shown, they can be affected by individual or group performance.
Banks declined to comment.
Wall Street bank managing directors typically make salaries between $350,000 and $600,000. They also receive bonuses up to one to two times their base salary, according to Wall Street Prep. This company helps aspirant bankers prepare for this industry. Incentives can reach millions for top performers.
According to data, 66% of global equity underwriting declined, which is $517 billion, and value of mergers was down 37% to $3.66 Trillion by December 20. This follows a record high last year of $5.9 T.
The KBW Bank Index, which measures major U.S. banks stocks, fell 26% in this year.
Slowdown is caused by the U.S. Federal Reserve’s and other central bank’s aggressive interest rate increases to contain inflation. These moves have impeded economic activity.
There are other risks, such as economic uncertainty caused by war in Ukraine and tensions between the U.S. and China. Also, supply chain snarls have fueled volatility on certain markets.
FICC traders performed well than investment bankers. According to Bell from Sheffield Haworth compensation for FICC traders is likely to rise or remain flat while that of stock traders may see a slight drop.
According to Barclays results, October’s FICC traders saw their revenue increase by more than a third of last year. This bright spot helped Barclays beat its expectations, even with rising costs elsewhere.
Firms such as Morgan Stanley Inc (MS.N) or Citigroup Inc Inc (C.N), have been forced to reduce their workforces by worsening economic conditions. According to a source, Goldman Sachs plans to lay off thousands of workers in order to manage a challenging environment.
Most large UK firms now discuss and allocate bonuses. Decisions are usually not made until the beginning of next year. Barclays, HSBC and others have begun to reduce staff working in areas that are not performing well in investment banking.
As rising inflation threatens households’ incomes, British banks face immense pressure to raise wages. After a backlash by lower-paid staff who had missed this opportunity earlier in the year, NatWest gave the majority of its 41.500 employees in Britain a pay increase and a one-off cash amount.
According to Sophie Scholes (a London partner of Heidrick & Struggles’ leadership advisory firm), “We expect that bonus pools will decrease compared with last year”
She said that a system which rewards stars performers more than their coworkers “will disappoint some.”