Measured in terms of investment banking profits, 2012 isn't turning out to be an especially disastrous year. At Goldman Sachs, profits were up an impressive 200% in the first nine months versus the same period of 2011. At Credit Suisse's investment bank they were up 95%, at RBS's markets business they were up 36%.
So far so good. Unfortunately, however, profits have become a meaningless indicator when it comes to this year's investment banking bonuses.
"The debate has changed," says Jon Terry, a partner in the reward and compensation practice at PWC. "The problem is returns. Very few banks are covering their cost of capital - even if you're making returns of 9%, which are good for this environment, it's not enough. And it's going to get even harder to make proper returns as the cost of capital increases.
"Banks are telling us that even if profits go up, they will have to reduce bonuses this year," Terry adds.
Because of this, Terry is predicting 20-40% bonus reductions at European banks this year, and bonus reductions of up to 20% at US banks.
This seems excessively pessimistic. Results for the first nine months suggest pay per head is down just 1% at RBS, down 'just' 17% at JPMorgan's investment bank and down 19% at UBS. At Deutsche, Goldman Sachs and Credit Suisse, pay per head is up this year compared to 2011.
Again, however, Terry tosses a damp flannel over the flicker of hope: "Banks have been accruing bonuses at a standard rate this year, but they're saying they will true-up the accruals at the end of Q4 and that bonuses will be reduced another 10-15% at that point."
One senior headhunter who has been working with banks on compensation says indications are that 2012 will mark a paradigmatic shift in bonus culture - but only at European banks. "There are two separate streams developing," he says. "US banks are under less pressure from regulators and public opinion and have lower capital requirements, but European banks are going to hammered at bonus time this year. We're expecting reductions of 60%-90% at banks like Barclays, UBS, BNP Paribas and SG."
He says UBS's vicious redundancies have dealt a big blow to line managers' efforts to sustain bonus pools this year: "They can no longer argue that they need to pay people, because senior managers are simply pointing out that they can go and pick someone up from UBS on base salary only." He also suggests that Barclays' investment bankers are at particular risk of bonus annihilation: "It's still not clear whether Jenkins is going to make the investment bank pay for the Libor embarrassment and the regulatory fine. It could be disastrous if the £290m Libor fine comes out of the investment bank's bonus pool."
Reuters today suggests there will be far more zero bonuses this year. Search firm Options Group is suggesting 20% of people in investment banks will receive nothing at all for 2012. Our own bonus survey suggested that 17% of people in London are expecting zero bonuses this year - although 47% of people think their bonuses will rise.
People responding to our survey aren't the only optimists in the world. US investment banking compensation specialist Alan Johnson has been persistently optimistic about bonuses this year, and thinks they will rise 0-10%. However, whilst Johnson's jocundity might apply on Wall Street, most people in London are considerably more gloomy.
One head of a London-based search firm did counter the gloom, however. "These predictions of bonus cuts are pure sensationalism," he said. "Bonuses absolutely will not be down as much as people are making out - remember there are fewer people than last year. You need to look on a case by case and desk by desk basis."