(Bloomberg) – Across Wall Street, this year’s gloomy expectations for banker bonuses are quickly proving true, as a slump in deals ends the industry’s war for talent and corporations regain the upper hand in fixing wages.
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JPMorgan Chase & Co., Bank of America Corp. and Citigroup Inc. are all considering cutting bonus pools for their investment bankers by 30%, according to people with knowledge of the internal deliberations. Some companies plan to give no rewards to low performing employees. The proposals are still under discussion and could change in the coming weeks, the people said.
These are the industry’s first year-end bonus snapshots after corporate deals and new title sales declined amid the market slump in 2022. five largest US banks fell 47% – a whopping $18.8 billion drop – in the first nine months. At Goldman Sachs Group Inc., even traders who have earned more are not immune to bonus cuts.
For legions of bankers and merchants, their annual bonuses can run into the millions of dollars and represent several multiples of their annual salary. Wall Streeters spend months banking on their bonuses to pay for fine private schools, luxury vacation homes and private club memberships.
Less than a year ago, employers were locked in a vicious bidding war for talent, with some companies forgoing layoffs almost entirely as they struggle to maintain adequate staff. Layoffs resumed a few months ago and now, with a growing number of freshly unemployed Wall Streeters, the banks have more leverage to maintain a cap on salaries. Many employees have no other viable options.
“Feature artists will be catered for,” said Anthony Keizner, managing partner of executive search firm Odyssey Search Partners. “But instead of rewarding some bankers heavily and dropping others, it seems the more common strategy will be to cut bonuses more broadly.”
Representatives from JPMorgan, Citigroup and Bank of America declined to comment.
All is not catastrophic. Rates and commodities traders helped propel fixed-income trading revenue to $53.7 billion on Wall Street, the second-best performance on record.
At Bank of America and Citigroup, that means executives can hold bonus pools for traders around last year’s levels, some people said. And the executives of these banks plan to reward higher rates, currencies and commodity traders with higher compensation packages.
Goldman is set to break away from rivals by cutting the bonus pool for traders by a low double-digit percentage, people with knowledge of the matter said earlier on Friday. The company is under particular pressure to limit wages after spending more than expected on an expansion in retail banking. Leaders recalled that campaign in October.
Four months ago, Goldman also stood out by signaling its intention to resume periodic eliminations of underperformers. But since then Morgan Stanley, Citigroup and Barclays Plc have followed suit.
In recent months, proponents of the job cuts have qualified their assurances, with Bank of America saying there were no layoffs “at this stage.” But the common practice of weeding out underachievers is set to resume next year, the people said.
“Some people are going to be laid off,” Morgan Stanley CEO James Gorman told the Reuters NEXT conference on Thursday. “We are making modest reductions around the world. In most companies, this is what is done after many years of growth.
On Wall Street, bonuses and other incentives are notoriously volatile as the industry goes through boom and bust cycles. During the last months of the year, banks grade the performance of their employees and set bonus pools that they can share, with the most generous portions for the rainmakers.
The outlook for bankers’ bonus pools has been gloomy for months. Typical transaction advisors can see their bonuses drop by as much as 20%, while their underwriting counterparts’ rewards drop 45%, compensation consultant Johnson Associates Inc estimated last month.
“This is going to be a tougher earnings season,” Jefferies CEO Rich Handler and Chairman Brian Friedman warned this week, “as it will for all companies in our industry.”
This year, banks such as Citigroup, Bank of America and Barclays are considering giving no bonuses to dozens of their underperformers, in what is known as “zeroing” or receiving a “doom egg”. ‘goose’, a ‘doughnut’ or a ‘bagel’. At Goldman, the number of bankers receiving nothing could exceed 100.
A Barclays spokesperson declined to comment.
Bonus snubs are often a precursor to layoff, but also a bit of a challenge: if a company wants to downsize, they can throw in a bunch and see if enough people get the message to accelerate attrition. Or, with layoffs on the rise at other companies, some managers can bet recipients will keep showing up at their desks, cheaply.
“Where else are these bankers going?” said Keizner. “Banks want their teams to stick around because when things pick up, banks won’t want to find themselves understaffed and scrambling again.”
Indeed, some small businesses may resist their normal urge to recruit talent with the now so uncertain Wall Street outlook. Evercore Inc., for example, is limiting replacement hires for departing bankers.
Lower payouts to bankers may not inspire much sympathy outside of finance.
In New York, the securities industry’s overall bonus pool will shrink 22% from a year ago, when the average payout was $257,500, according to estimates by state comptroller Thomas DiNapoli.
That would still be more than four times what a typical private sector employee in the city earns.
–With help from Sridhar Natarajan, Harry Wilson, Gillian Tan and Dan Reichl.
(Updates to add a chart showing investment banking revenue.)
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