Bonuses Get Squeezed on Wall Street
Source: Dow Jones News
By Justin Baer and Christina Rexrode
On Wall Street this year, the biggest rainmakers may feel like they have been left high and dry.
When the country's biggest banks start telling employees the value of their annual bonuses as early as next week, many traders will suffer sharp cuts, especially those who specialize in fixed income, according to people familiar with the banks' plans.
Those payouts reflect how bond-trading desks have generally produced poor results during the second half of 2015.
But even investment bankers who helped power a boom in deal-making that delivered huge profits for their employers are expected to get small bumps at best.
"Flat," said Michael Karp, chief executive of recruiting firm Options Group, "is the new up."
The less-than-boffo payouts will come as a disappointment to bankers who worked on a record amount of mergers and acquisitions deals in 2015. There were $4.7 trillion of takeovers announced in 2015, more than any year on record, according to Dealogic, as companies searched for new sources of revenue and profit amid sluggish economic growth.
Revenue from advising companies surged at many banks including Goldman Sachs Group Inc. and Morgan Stanley, the top two deal advisers by value, according to Dealogic. At Goldman, for example, financial-advisory revenue rose 36% year over year in the third quarter to $809 million, while at Morgan Stanley it jumped 42% to $557 million.
Meanwhile, across Wall Street, 2015 trading revenue is expected to be roughly flat overall, and down 9% in fixed income, according to projections from UBS analysts.
Morgan Stanley is among the banks that set aside a smaller pool of bonus money as a way to rein in expenses following a tough end to the year on its trading desks, people familiar with the matter said.
The firm's debt, currency and commodities traders will absorb the sharpest drop, with some seeing cuts of more than 20%, according to people familiar with the matter. Those awards mark the continuation of a trend in recent years as new rules on bank capital and risk-taking squeezed fixed-income profits.
Morgan Stanley responded in November by cutting 1,200 debt traders and salespeople, along with the back-office staff that support them. Analysts expect CEO James Gorman to cut more costs.
The firm's equity traders will get payouts that are flat to down slightly, despite posting revenue gains, while investment banker bonuses will be unchanged to slightly higher.
At several firms, the difference in payouts is causing grumbling among some stock traders and M&A bankers, who feel they deserve a larger slice of the bonus pool because they enjoyed such a strong year, said a number of executives and bankers across Wall Street.
On an October conference call with his managing directors, Goldman Chief Executive Lloyd Blankfein reminded employees that the fixed-income business, currently in the midst of a slump, had carried the firm's results in times when other divisions struggled, people familiar with the matter said. Some of the businesses that have fared well this past year had gone through their own slump before the current M&A boom began. The philosophy extends to how Goldman sets annual bonuses, the people said.
Even bankers who receive cuts to their bonus pay are likely to receive checks well into the six figures and sometimes beyond.
Last year, for example, the average bonus paid in New York City's securities industry was $172,860, according to an estimate by New York state Comptroller Thomas DiNapoli. That was a 2% increase over the previous year.
Citigroup Inc., J.P. Morgan Chase & Co. and Goldman Sachs are all expected to have bonus pools that are roughly flat compared with last year or down slightly, people familiar with those banks' plans said.
Citigroup is expected to hit some of its fixed-income traders as much as 20%, while Bank of America could cut them as much as 10%. Goldman's fixed-income bonuses will drop by about 10%.
Bonuses for Bank of America's investment bankers could be down 5% to 10%. Goldman's bankers should see their payouts rise by about 10%, on average.
At J.P. Morgan, the nation's biggest bank by assets, bonuses across its corporate and investment bank are expected to be relatively flat, people familiar with the bank said. But there will still be some disparity in bonus pools versus last year among certain groups such as trading, where there are expected to be greater discrepancies between stronger and weaker performers, some of these people said.
Over recent years across the industry there has been more pressure from regulators to pay for performance and ding executives for nonperformance or control issues, one of these people added.
That emphasis has increased at many firms this year.
Emily Glazer contributed to this article.
(END) Dow Jones Newswires
January 07, 2016 19:40 ET (00:40 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
Source: Dow Jones News
By Justin Baer and Christina Rexrode
On Wall Street this year, the biggest rainmakers may feel like they have been left high and dry.
When the country's biggest banks start telling employees the value of their annual bonuses as early as next week, many traders will suffer sharp cuts, especially those who specialize in fixed income, according to people familiar with the banks' plans.
Those payouts reflect how bond-trading desks have generally produced poor results during the second half of 2015.
But even investment bankers who helped power a boom in deal-making that delivered huge profits for their employers are expected to get small bumps at best.
"Flat," said Michael Karp, chief executive of recruiting firm Options Group, "is the new up."
The less-than-boffo payouts will come as a disappointment to bankers who worked on a record amount of mergers and acquisitions deals in 2015. There were $4.7 trillion of takeovers announced in 2015, more than any year on record, according to Dealogic, as companies searched for new sources of revenue and profit amid sluggish economic growth.
Revenue from advising companies surged at many banks including Goldman Sachs Group Inc. and Morgan Stanley, the top two deal advisers by value, according to Dealogic. At Goldman, for example, financial-advisory revenue rose 36% year over year in the third quarter to $809 million, while at Morgan Stanley it jumped 42% to $557 million.
Meanwhile, across Wall Street, 2015 trading revenue is expected to be roughly flat overall, and down 9% in fixed income, according to projections from UBS analysts.
Morgan Stanley is among the banks that set aside a smaller pool of bonus money as a way to rein in expenses following a tough end to the year on its trading desks, people familiar with the matter said.
The firm's debt, currency and commodities traders will absorb the sharpest drop, with some seeing cuts of more than 20%, according to people familiar with the matter. Those awards mark the continuation of a trend in recent years as new rules on bank capital and risk-taking squeezed fixed-income profits.
Morgan Stanley responded in November by cutting 1,200 debt traders and salespeople, along with the back-office staff that support them. Analysts expect CEO James Gorman to cut more costs.
The firm's equity traders will get payouts that are flat to down slightly, despite posting revenue gains, while investment banker bonuses will be unchanged to slightly higher.
At several firms, the difference in payouts is causing grumbling among some stock traders and M&A bankers, who feel they deserve a larger slice of the bonus pool because they enjoyed such a strong year, said a number of executives and bankers across Wall Street.
On an October conference call with his managing directors, Goldman Chief Executive Lloyd Blankfein reminded employees that the fixed-income business, currently in the midst of a slump, had carried the firm's results in times when other divisions struggled, people familiar with the matter said. Some of the businesses that have fared well this past year had gone through their own slump before the current M&A boom began. The philosophy extends to how Goldman sets annual bonuses, the people said.
Even bankers who receive cuts to their bonus pay are likely to receive checks well into the six figures and sometimes beyond.
Last year, for example, the average bonus paid in New York City's securities industry was $172,860, according to an estimate by New York state Comptroller Thomas DiNapoli. That was a 2% increase over the previous year.
Citigroup Inc., J.P. Morgan Chase & Co. and Goldman Sachs are all expected to have bonus pools that are roughly flat compared with last year or down slightly, people familiar with those banks' plans said.
Citigroup is expected to hit some of its fixed-income traders as much as 20%, while Bank of America could cut them as much as 10%. Goldman's fixed-income bonuses will drop by about 10%.
Bonuses for Bank of America's investment bankers could be down 5% to 10%. Goldman's bankers should see their payouts rise by about 10%, on average.
At J.P. Morgan, the nation's biggest bank by assets, bonuses across its corporate and investment bank are expected to be relatively flat, people familiar with the bank said. But there will still be some disparity in bonus pools versus last year among certain groups such as trading, where there are expected to be greater discrepancies between stronger and weaker performers, some of these people said.
Over recent years across the industry there has been more pressure from regulators to pay for performance and ding executives for nonperformance or control issues, one of these people added.
That emphasis has increased at many firms this year.
Emily Glazer contributed to this article.
(END) Dow Jones Newswires
January 07, 2016 19:40 ET (00:40 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
