December 1, 2023

Investment Banking

Let Your Investment Banking Do The Walking

Bankers’ Bonuses Seen Cratering

High inflation and the threat of a recession have put a damper on investment banking business, with stock and bond sales and M&A deals declining from last year, and that’s likely to be reflected in a hit to bankers’ bonuses, according to a report released on Tuesday from Johnson Associates, Inc.

Underwriting bankers are expected to have the largest decrease in bonuses, with their incentive pay dropping by as much as 45% from 2021. Bonuses for mergers and acquisition bankers will likely fall by 15-20%.

Key Takeaways

  • a new report shows that bankers will receive smaller bonuses this year
  • Underwriting bankers are expected to be hit the hardest, with their incentive pay dropping by up to 45%
  • The financial sector continues to perform worse than in 2021, and banks are beginning to lay off employees

“It’s a cyclical business, and it fell off of a cliff this year,” Alan Johnson, managing director of Johnson Associates, said in an interview with Bloomberg. “There will be a lot of unhappy people by the end of the year.”

Asset management bankers will likely see a 25% decline in their bonuses, and wealth management bankers may see a 15-20% decrease, the report said.

The report is just the latest sign of disappointing bonuses after New York State Comptroller Thomas DiNapoli predicted last month that Wall Street bonuses would fall more than 22% from 2021.

Bad Year in Finance

This year has been a tough year for the financial sector after achieving record highs in 2021. Johnson Associates reports that asset managers and alternatives stocks have underperformed the S&P 500 year-to-date, falling 27% and 28%, respectively.

Investment banking revenue at five of the biggest Wall Street firms fell by more than 45% in the first nine months of 2022. Inflation, the fear of a recession and global tensions are some of the main causes, as they have led to an unpredictable market and thus fewer IPOs and deals.

“The industry was at a bubble level last year,” Johnson said to Reuters. “The bubble burst, and now we’re having a hangover.”

There may also be significant hiring slowdowns at these banks, with many already reducing hiring plans or laying off workers.

In September, Goldman Sachs began a round of job cuts, looking to fire around 500 bankers as their profits continued to fall. Morgan Stanley plans to start a round of layoffs sometime soon as dealmaking slows down, Reuters reported.

Despite the layoffs, base salaries will increase 4-5% for the second year in a row, Johnson’s report said.

While dealmakers have struggled in this market, traders continue to succeed, as fixed-income traders will see a 15-20% increase in their bonuses.

“Overall, that business will continue to be the star,” Johnson said to Bloomberg, while those in equity underwriting and M&A see a massive decrease in their compensation. “They should see it coming, but deniability is always strong.”