LONDON (BLOOMBERG) - Bonus season promises to be a miserable one at European investment banks.
Shrinking revenue will likely translate into double-digit percentage declines for many trading and investment banking teams at lenders including HSBC Holdings, Deutsche Bank and Societe Generale, according to recruiters and executives.
The tough landscape for Europe's financial industry - with restructuring at several firms, negative rates, hedge fund closures and costly technology upgrades - has left many braced for steeper bonus declines than a year ago. While bonus pools won't be finalised until after the end of the year, there are signs that cash equities will be hardest hit.
Executives at global banks have dropped plenty of hints that bonuses will fall. "Don't get distracted, and get us a good fourth quarter," Samir Assaf, HSBC's top investment banker, quipped on a staff call whose remarks were recounted to Bloomberg News.
"We need every dollar in this fourth quarter to get a good bonus round, if only for that," he said. In its third-quarter results, HSBC said it had cut performance-related pay by US$200 million (S$272 million).
Things aren't looking much better for rivals in the US. Bonuses are poised to drop by double digits in equity trading and debt and equity underwriting, a recent report from a compensation consultant Johnson Associates said.
Some of the bankers faring badly this year are usually among the biggest sales generators. Global revenue from investment banking is poised to decline again this year, according to data from Coalition Development Ltd.
But it's cash equities desks that will see the largest bonus drops, with falls of 15 per cent in Europe, the Middle East and Africa predicted by recruiting firm Options Group, while equity derivatives are set for a 10 per cent decline. Prime finance units, which serve the under-pressure hedge fund industry, are set for 5 per cent bonus cuts, in line with their US peers. Commodities teams, meanwhile, should escape the general slump in bonuses.
Rewards will also be scarce at Credit Suisse Group, where several quarters of lacklustre deal-making and weaker leveraged finance may reduce payouts at its investment banking and capital markets division, Bloomberg News reported.
There will be some exceptions. IT and cyber-security budgets are unlikely to be cut while expertise in these sectors is in high demand, recruiters said.
Barclays had the best third quarter on record for equity and debt capital markets and merger advisory, according to chief executive officer Jes Staley, and the firm's rates and securitised products units were strong. Good-performing investment bankers across the industry will expect to be rewarded accordingly.
These bright spots pale in comparison to the sweeping job cuts and cost-saving drives at many of the region's largest banks this year. SocGen is planning to cut 1,600 posts and Barclays has axed 3,000 jobs, HSBC expects to make wide-ranging reductions and Deutsche Bank aims for even more.
"There were massive redundancies," said Ben Harris, senior manager at London-based recruiter Morgan McKinley. "Bonuses will be cut; people will be pretty happy to keep their jobs."
