Bank by bank, this is what we know about the coming bonus round
Will any bank pay good bonuses for this year? This is the current state of play at some of the major firms.
Bank of America bonuses
Bank of America hasn't said much publicly about its plans for bonuses this year. Internally, there are fears that the bank's commitment not to make broad staff cuts but rather to freeze hiring could lead to the compensation pool being stretched and to salary hikes being shelved. However, this overlooks the fact that Bank of America has in fact done away with 5,000 people net (7,500 gross once student hires are accounted for) in the past year.
If Bank of America wants to pay reasonable bonuses, it probably could. The investment banking business has performed well this year, with fees largely flat on last year and profits across the banking business (which includes corporate banking and transaction services) up 45%. BofA has reason to keep people happy: last year, Financial News said it cut bonuses for European dealmakers by 30%.
What will become of Barclays' bonuses this year? In February 2024, Barclays' investment bank is reportedly being hit with new return on equity targets, which could be as high as 14%-15% and imply either big cost-cutting, big reductions in risk weighted assets, or big increases in revenues. This may not, however, preclude one last bonus hurrah.
Barclays is hypothetically free to pay increased bonuses thanks to the relaxation of the banking bonus cap for banks in the UK. Whether it pays bigger bonuses or not remains to be seen, however, particularly now that Paul Compton is deciding the investment bank bonus pool for the second year running.
Last year, bonuses at Barclays fell 20%. But 698 people across the bank still earned more than €1m, compared to 537 in 2019. Some insiders at the bank say they've been told to expect less this year. In the US, Barclays' willingness to pay big bonuses for 2023 may conceivably be muted after it's had to spend money hiring in new M&A bankers following a flurry of departures allegedly triggered by its failure to deliver on verbally guaranteed bonuses for 2022.
BNP Paribas bonuses
BNP Paribas could also pay its bankers well this year after profits in its global banking business rose 90% year-on-year in Q3. However, as we noted at the time this was mostly due to securities services. Last year, BNP was generous: total compensation for material risk takers (the highest earners) in its corporate and investment bank rose 17% to an average of $876k.
Citi's enthusiasm for paying generous bonuses may be compromised by its restructuring program. Citi is currently working its way down the management hierarchy as it plucks out superfluous staff, seemingly to avoid paying them bonuses in late January.
Citi hasn't said much about its intentions for pay this year. Profits in the institutional clients group were 'only' down 10% in the first nine months of 2023.
Deutsche Bank bonuses
Will Deutsche Bank pay good bonuses for 2023? Last year, it cut the bonus pool for the investment bank by 8%. This year, it is unlikely to make amends: spending on pay was up 5% in the first nine months of 2023, but headcount in the investment bank was up 14%. Deutsche has hired at least 50 managing directors (MDs) into its investment banking division but it doesn't have the revenues to show for it: M&A revenues were down 46% year-on-year in the first nine months.
If anyone is paid well at DB for 2023 it's likely to be people in the distressed debt team. One M&A banker there says the bank is focused on paying top talent and promoting diversity.
As a German-regulated bank, Deutsche Bank will not be free to lift the bonus cap, anyway. The same applies to BNP Paribas above.
Goldman Sachs bonuses
Goldman Sachs is having a bad year, but senior management have been talking up bonuses.
Net earnings at the bank were down 34% year-on-year in the first nine months of 2023, but average pay per head at the firm went from $232k for the first nine months of 2022 to $259k for the same period this year.
Goldman CFO Denis Coleman said the firm needs to pay people generously as there is fierce competition for them. This has been reiterated by CEO David Solomon, who has declared that competition for talent is "very, very strong." Employees in the asset management division will reportedly receive more of their pay in the form of returns derived from returns and skin in the game. Reuters says the bank is discussing higher payments for its stars. Some at the bank say there are "whispers" that they will be compensated for poor pay last year.
Morgan Stanley bonuses
Will James Gorman waft money around to celebrate his last year in charge? Maybe not, but there are some signs of generosity.
Compensation spending at Morgan Stanley's investment bank was up 1% year-on-year in the first nine months of 2023. This may not sound promising, but Morgan Stanley also cut 3,500 people during this period and Gorman has been saying things like, "Really high performers are in demand across the street," which suggests an inclination towards generosity for people in that category.
Some Morgan Stanley insiders say they've been told good things about this year's compensation. Others (in equities), say they're being told to brace for a 20% decline in bonuses.
UBS is busy with the Credit Suisse integration and has so far spent $500m on Credit Suisse retention bonuses, meaning it may not be inclined to be generous this year.
It may, however, need to keep its own people happy. Last year, bonuses for key risk takers at UBS fell 20% and the overall bonus pool was down 10%. Underlying operating expenses at the investment bank were up nearly $500m in the first nine months, although this may be due to technology spending rather than bonus accruals. Nonetheless, UBS insiders aren't that hopeful and note that it's been a "difficult year."
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