Bankers in New York, London bracing themselves for 30-50% smaller bonuses

NEW YORK/LONDON – Bankers in New York and London are bracing themselves for year-end bonuses that recruiters estimate are 30 per cent to 50 per cent lower, while some may receive none at all as dealmaking sputters and economic gloom takes hold.

Financiers face disappointment when their compensation awards land in the first quarter, and thousands more of their colleagues could be laid off after hundreds were let go in 2022, according to recruiters and compensation experts.

In 2021, the industry handed out the biggest awards since 2006 as the economy roared back from the pandemic.

But in 2022, the pace of mergers and acquisitions and stock offerings dramatically slowed as debt financing markets collapsed and stock market volatility hurt valuations.

The outlook for a recession also increased as the year progressed, with the United States Federal Reserve aggressively raising interest rates to tackle inflation, cooling economic activity.

For US managing directors at Goldman Sachs, leaner times will probably translate to a 40 per cent to 45 per cent decline in average compensation for 2022, according to data provided by Sheffield Haworth, a recruitment firm for top executives.

At rival Morgan Stanley, average pay for senior bankers is forecast to slide 35 per cent to 40 per cent, according to the report authored by Mr Julian Bell, Sheffield Haworth’s head of the Americas, and Ms Natalie Machicao, a vice-president.

At JPMorgan Chase & Co, average total compensation for US managing directors is forecast to drop 35 per cent to 40 per cent, and pay for senior bankers at Citigroup will probably shrink 35 per cent and at Bank of America 30 per cent, according to Sheffield Haworth.

While the estimates reflect averages, payouts can vary widely depending on individual and group performance.

The banks declined to comment.

Managing directors at Wall Street banks typically earn salaries of US$350,000 (S$473,000) to US$600,000 a year, with bonuses of one or two times their base pay, according to Wall Street Prep.

For top performers, incentive compensation can soar to millions of dollars.

Deals plunge

The pay slump coincides with a decline in global equity underwriting of 66 per cent, or US$517 billion in deal value, in 2022 compared with 2021, according to data from Dealogic.

The total value of mergers and acquisitions sank 37 per cent to US$3.66 trillion by Dec 20, after having hit an all-time high of US$5.9 trillion in 2021, the data showed.

The slowdown comes as the Fed and other central banks raise interest rates aggressively to tame inflation, moves that have curtailed economic activity.

Other risks including economic uncertainty spurred by

the war in Ukraine,

tense United States-China relations and snarled supply chains fuelled volatility in certain markets.

Worsening economic conditions have already prompted some companies, including Morgan Stanley and Citigroup, to trim their workforces.

After an initial round of layoffs in 2022, Goldman Sachs is planning to cut thousands of employees in 2023 to navigate a difficult environment, a source familiar with the matter said.

In the United Kingdom, most big companies are discussing and allocating bonuses now, with decisions not usually announced until early 2023.

Barclays and HSBC have already started to trim staff in underperforming areas of investment banking.

UK banks are also under immense pressure to lift wages for their lower-earning staff in Britain as soaring inflation erodes household incomes.

NatWest offered the bulk of its 41,500 staff in Britain a pay rise and one-off cash sum after a backlash from lower-paid employees who missed out earlier in 2022.

“We expect bonus pools to reduce compared to last year, and there will be no bonuses at some institutions,” said Ms Sophie Scholes, a partner at leadership advisory firm Heidrick & Struggles in London. A situation that rewards star performers over their colleagues “will leave some disappointed”, she said. REUTERS