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Pay will never be the same again

With the financial system in crisis and politicians of all hues calling for compensation to be capped, it’s easy to miss a more prosaic reason why bonuses are unlikely to reach stratospheric levels in future: broker dealers no longer exist.

Ken Lewis underscored the point in a recent interview with Fortune magazine. “Merrill was paying typical Wall Street pay,” he said. “Their staff people were making a lot more than our staff people. That won’t last. We intend to pay market instead.”

How much less can Merrill people expect to make now they’re being absorbed into BofA? It will vary by business area, but the differential is likely to be noticeable.

“Commercial banks have tended to pay 25-30% less than investment banks,” says Michael Karp, chief executive of international search firm Options Group. “That made investment banks attractive places to work, but that sort of glamour is fading now that everyone’s turning into a commercial bank.”

BofA isn’t universally frugal – staff hired into former growth areas like leveraged finance in 2005/6 were brought in on generous packages. However, senior M&A bankers at BofA earned substantially less than their counterparts at Merrill: “If MD packages for investment banking at Merrill were $3m-$4m, at BofA they were more like $1.5m,” says one headhunter.

Lewis is keen to propagate the idea bonuses aren’t coming back. “The Golden Age for financial services is over,” he told Fortune. “It will never be the same, not in my career. Revenues will be far harder to get in the future.”

Comments (13)

  1. “Commercial banks have tended to pay 25-30% less than investment banks,” says Michael Karp, chief executive of international search firm Options Group. “That made investment banks attractive places to work, but that sort of glamour is fading now that everyone’s turning into a commercial bank.”

    But then, what about the IB arms of places that already were retail banks like Citibank – will pay be the same as usual there?

  2. They will still be hig enough for it be a very attractive sector. Smart people will still make money. Alarmist headings like these serve no purpose.

  3. Ha!

    Its all encompassing, generic, fearmongering comments like that which symbolise why companies such as BofA have never been worth the buildings they occupy, and they never will. If Ken’s so clever, why doesnt he take a step back and realise at that rate young adults will forget the gruelling hours and effort required in i-banking and just strive to become partners in law/accountancy firms instead! 9-5, 1million/year…. keep your job mr lewis. If you think anyone earning a city salary is likely to take a 50% cut in pay for anyting longer than the following 2-3 years, think again.

  4. Pay at Citi, JPMorgan, BofA and other universal banks will inevitably be a lot lower this year than last year. Broadly, those banks have tended to pay less than pure investment banks even in a good year, so pay will now gravitate towards that lower level.

    Mr. Insightful Reply
  5. Measly thinks lawyers and accountants work 9-5. HAHHAHHAHAhAH!!!

  6. During the boom Citi / JPMorgan had to keep up in terms of compensation with Merrill / Morgan / Goldman to attract top talent. But they did not like it nor did they want to pay. Now that everyone is a commercial bank Citi / JPMorgan feel vindicated. Citi / JPMorgan dictate the rules of pay now and it is going to be LOWER for several years to come. Get used to it.

  7. Im sure ‘studmeister’ is a high-flying corporate litigation lawyer for freshfields who has slicked back hair and works 8am-11pm every night for 36k, but ive worked in both a big four and done work experience at a law firm just outside MC. Most partners do work 9-5. and half of that is client lunches. its the grads and managers who get molested. glad i made you laugh though studmeister, you go stud some girls.

  8. @ BEN – You say it as though bankers will be paid less than their counterparts in other inustries. Truth is even with a lower pay they will rake in more than most people can only dream off. They were vastly overpaid , but salaries will never touch the gorund else they will go and make their money elsewhere. By the way are you a finance graduate that nver got called for an IB interview ?

  9. How Ironic. Wasnt BoA one of the highest payers during the CDO Boom?

    I had graduates with one year structuring experience from my team leave my top tier firm to go to BoA back in 2006 for good 6 figure packages. From what I saw they paid well over market levels to entice candidates during the time they were building up there CDO business.

  10. Too many people were giving up becoming doctors / physicists / engineers etc to go into banking purely for the money. This is a good time to reconsider priorities. If you do love finance, you would not be doing it purely for the money. The new regulatory regime and public backlash against bankers will ensure that the next few years will be a much tougher time in terms of renumeration (much higher than the general public though) and it is good actually that some sanity came back to the market. Was what we did that much better for the social good than a doctor or scientist? I didn’t think so!

  11. Prentending that lawyers at top firms work 9-5 is just idiotic. Lawyers were actually very busy before the current crisis and are even busier now (ok, save for structured finance / securitization teams).

  12. Partners at successful law firms do not work 9-5, and anyone that believes this is either being very stupid or totally naive. My brother is a partner at a mid-tier law firm and easily works 75 hour weeks.

  13. Hedge funds are the new investment banks.. Expect a lot of smart people moving from banks to hedge funds, especially if pay goes down.

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