Investment bankers won’t find coal in their Christmas stockings, but they’ll find much less than in the glory days before the market meltdown.
Banker bonuses, which are down more than 40 percent from their high point in 2007, will see no increase this year.
That’s the dour view of executive-compensation firm Johnson Associates, which says investment-banking business is so slow that after the sector’s workers bore the brunt of most of the 7,000 job losses on the Street this year, they will find the bonus pie smaller as well.
“It’s a tremendous drop from five years ago. If you were getting an average bonus of $400,000 back in 2007, then this year it will probably be around $200,000 or $250,000,” says Alan Johnson, managing director of Johnson Associates.
That’s because there’s much less investment-banking business being done today, at least compared with the halcyon days of Wall Street just before the market meltdown of 2008.
As revenues collapsed, banks laid off their mergers and acquisitions and initial public offering staff and advisers.
“Advisory and equity underwriting activity remains weak,” according to the Johnson Associates report.
The problems are the result of “fewer deals being done, less capital being raised and fewer IPOs.” And it has been going on for a while, officials of the firm say.
“This is the fourth year in a row that investment/commercial banking has continued to shrink,” Johnson says. His firm is a compensation consulting firm specializing in the design of annual and long-term incentive plans.
Another factor depressing the investment-banking business is the political and regulatory firestorm Wall Street banks are facing from Capitol Hill, the report added.
The “continued drumbeat that financial services is outsized and can/should come down” will be growing even louder now that the election is over, according to the report.
Johnson also predicts that “public and regulatory scrutiny on compensation will continue for the foreseeable future.”
Indeed, other parts of the securities industry are also feeling the pain.
Stockbrokers selling equities will see their bonuses go down 5 percent to 10 percent compared with 2011. This is the result of diminished trading by Main Street, which means trading revenue and commissions are at four-year lows.
Hedge-fund executives may see some small bonus upticks of about 5 percent compared with last year, the report said.
However, fixed-income executives, who sell bonds, should see bonuses rise this year by something between 10 percent and 20 percent. But Johnson notes that the fixed-income securities business has gone through much pain.
“They’re up meaningfully this year. But this is off of a terrible year for fixed income in 2011,” he says.
Overall, Johnson sums up, 2012 will end up being “a year of moderate improvement as the securities industry tries to dig itself out of a hole.”
Whatever part of the securities industry one examines, it’s quite a comedown from the booming, glorious 1990s when the industry was fat and happy. There were constant expectations back then of big paydays.
And that’s when a popular New York magazine, charting the multimillion-dollar investment-banking bonuses at the end of the year, told of one banker in tears because his anticipated bonus was “only” $1 million.