London bank staff face 'donut' bonuses

London, the world's biggest centre for currency trading, cross-border bank lending and interest-rate derivatives, has lurched from one crisis to another since 2008. The Brexit uncertainty may add to the dour mood.
London, the world's biggest centre for currency trading, cross-border bank lending and interest-rate derivatives, has lurched from one crisis to another since 2008. The Brexit uncertainty may add to the dour mood. PHOTO: BLOOMBERG

Spate of zero bonuses ahead as Brexit reality kicks in and banks review compensation to cut costs; more jobs may go

LONDON • Just be glad you have a job.

That is the message London's investment banks will be giving their staff this year, with bonus pools set to be cut by at least a quarter, as Britain's decision to leave the European Union stymies dealmaking and threatens higher costs from moving staff, executives and recruiters said.

Some bankers will not even be that lucky, as more job cuts in London are likely in September if client activity does not pick up, according to multiple banking executives, who asked not to be named discussing personnel matters.

"Lower revenues and lower profits mean compensation will be lower," HSBC Holdings chairman Douglas Flint said in an interview last week, when asked whether Brexit will cut into banker compensation in London.

The Brexit vote has already resulted in turbulent markets and may put a chill on investment, another problem for European banks like Deutsche Bank, Barclays and CreditSuisse Group that are in the midst of dramatic reorganisations.

The result will be an increase in "donut" bonuses - in other words, zero - for this year, and a broader review of compensation to cut costs in coming years.

BIG QUESTION MARK

How the Brexit vote will affect bonuses is as much up in the air as Brexit itself... Exchange rates for working out bonus pools, deals, trading volumes, even the importance of London to global banks and possible redundancy or relocation programmes, are all unknown.

MR NICHOLAS STRETCH, a partner with law firm CMS Cameron McKenna.

"Reality is going to kick in - today it's about job preservation, rather than bonuses," said Mr Jason Kennedy, chief executive officer of recruitment firm Kennedy Group in London.

"Things are going to change", and some people shouldn't expect any bonuses, he said.

London, the world's biggest centre for currency trading, cross-border bank lending and interest-rate derivatives, has lurched from one crisis to another since 2008, when tens of thousands of jobs were cut as Royal Bank of Scotland Group was nationalised and Lehman Brothers Holdings foundered.

Since then, the European banking sector has been hit with fines for past misconduct, with more than US$12.6 billion (S$17 billion) in penalties and settlements last year alone.

Share prices reflect the gloom that record-low interest rates and slow dealmaking will continue to dent profit after the worst first quarter for trading since 2009.

Several European banks are down more than one-third this year. That has heightened the pain felt by senior bankers who get a large portion of their pay in deferred stock.

On the advisory side, Goldman Sachs Group has said it expects a slump to continue as uncertainty about what Brexit will look like chills investment. The vote has already led to multiple deals being scrapped or reassessed.

Said Mr Stephane Rambosson, managing partner at executive search firm DHR International in London: "It's a great opportunity to blame Brexit, giving people the message, 'You're lucky enough to have a job'."

Bonuses could fall 30 per cent or more in some areas, he added.

The uncertainty caused by Brexit may add to a dour mood in the City, as London's financial district is known. Deutsche Bank said last week that a survey of staff found fewer of the bank's employees feel committed to the lender than they were a year earlier, with less than half saying they are proud to work at the firm.

Mr Nicholas Stretch, a partner with law firm CMS Cameron McKenna, said: "How the Brexit vote will affect bonuses is as much up in the air as Brexit itself.

"Exchange rates for working out bonus pools, deals, trading volumes, even the importance of London to global banks and possible redundancy or relocation programmes, are all unknown."

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on July 06, 2016, with the headline 'London bank staff face 'donut' bonuses'. Print Edition | Subscribe