NEW YORK, Dec 14: Investment bankers lucky enough to have a job will have to take solace in their employment at the holidays, because firms like Merrill Lynch have signalled that bonuses will be down 50 per cent this year.
On average, Merrill’s investment banking bonuses will be down by half, with the highest payouts — for the ranks of managing directors — around $750,000, compared with $1.5 million to $2 million a year ago, a company source said.
Merrill Lynch & Co. Inc, which declined to comment on bonuses, will not be telling employees what their payouts will be until next year because their fiscal calendar ends in December.
For firms like Goldman Sachs Group Inc and Lehman Brothers Holdings Inc, which wrap up their years in November, the bad news comes down next week.
Bonuses are one of the highest individual costs for investment banks, which pay out 50 cents in compensation for every dollar of revenue. For top executives, bonuses make up the lion’s share of their hefty pay packages.
Many on Wall Street and in the City may feel fortunate they still have jobs in an industry that has fired thousands, though even highly paid traders used gallows humor to deflect lingering doubts.
I’m relieved because we had rumors before that this year’s bonus would be cut by 85 per cent, said one Merrill stock trader in London. We don’t know whether the bonus will be in cash or shares, but even if it’s all in shares it’s OK because we were joking we might get our bonus in the Turkish lira, or even the Italian lira, which you can’t use any more.
Although the megabucks payouts of the boom years will for most remain a distant memory, the major investment banks look set to make reasonable awards to bankers who have been productive enough to survive the culls of the past year.
Neither Goldman, set to announce bonuses next Tuesday, nor Lehman, which tells its employees on Wednesday, would say what their bonus policy would be this year.
Everyone is troubled, said Peter Gonye, a banking specialist at recruiting firm Spencer Stuart. He noted, however, that fixed income and derivatives stand out as bright spots. Many of (those areas) subsidize the firms for the money they’re losing elsewhere.
But industry insiders believe extreme measures, such as the across-the-board zero-bonus policy carried out last year by global banking group HSBC for its equities research department, look unlikely.
Most banks have cut down to what most people see as the red meat ... with the fat and the skin gone. Anyone left is considered pretty essential and so should get something relatively good considering the year we have had, said the head of mergers and acquisitions at a major international investment bank.
Morgan Stanley staff have already learned how much they will get, according to banking industry sources, but the bank also declined comment on bonus policy.
Bankers’ bonuses, which can run to huge multiples of basic pay, will likely decline to reflect shrinking revenues, but swinging cost cuts and a massive job cull by banks over the past two years will help maintain payouts at reasonable levels for big-revenue earning bankers.
Nearly 70,000 jobs have gone from the international securities business since the start of last year. There is going to be some attempt to pay more than the profits would suggest, said the head of M&A at one international bank.
Research is one area that may be very hard hit because of the cloud over the sector from charges that analysts misled investors by pandering to bankers and issuing biased stock reports. An industry-wide probe into research may drastically change the nature of the business.
And the divide between the stars and mediocre performers will be bigger this time round. Banks could seize the downturn in equities and M&A to cut costs across the board.
Bankers will be not be celebrating as much, said a senior executive at a US investment bank. Clearly, the industry will re-price itself because there is an obvious lack in the M&A market and the new issue market, so clearly bonuses will be lower.—Reuters
