While most banks haven’t yet announced their 2017 bonus payouts or fourth-quarter results, those announcements are coming soon to Wall Street. Some bankers are looking forward to cashing what they assume will be a hefty check, while others are filled with trepidation, interpreting the tea leaves to mean that they are in for a major disappointment.
Based on what we know as of this moment, here are the bonuses that are likely to be smaller than Wall Street professionals hoped for. Unless you’re a top-notch individual performer or your bank really turned things around for the better in the fourth quarter, temper your bonus expectations if you fall into any of these categories.
Johnson Associates predicted in November that low levels of market volatility and client activity would contribute to underwhelming sales and trading results, causing 2017 fixed income bonuses to sink between -5% and -10% year-over-year and equities incentives to be flat to down -5%.
Rates traders’ bonus pool at Bank of America Corp is likely to slump more than -10%, while bonuses for those teams at J.P. Morgan – the biggest trading bank in the world – are set for -5% declines, according to Bloomberg.
Meanwhile, some fear that European banks such as Deutsche (where the bonus pool has shrunk by about 11% annually since at least 2009), Credit Suisse (which reorganized its derivatives desk amid a broader restructuring) and Barclays (we’ll get to it in a minute) hired too many rates traders last year and that will cause the bonus pool to be diluted. Bloomberg reported that some will cut bonuses by as much as -25% year-over-year and other may hand out “doughnuts,” industry slang for a zero payout, to FICC traders.
Macro traders at those firms can only hope for a better year in 2018 as the Fed raises rates and volatility increases at some point.
Barclays’s top investment banker, Tim Throsby, is sharpening divisions in bonuses this year, boosting pay for top performers while cutting it for those in the bottom half, according to Bloomberg.
The bonus pool for Barclays’s senior managers is set to shrink after pretax profit fell -7% at the corporate and investment bank in the first nine months of 2017. To exacerbate the issue, a post-Brexit drop in the value of the pound made paying U.S.-based employees more expensive for British banks, and the new Republican tax bill is going to hit New Yorkers especially hard.
Profits at Citi’s institutional clients group (ICG, its investment bank) were up 24% year-on-year in the first nine months and 15% in the third quarter of 2017. However, Citi’s investment bank has one of the lowest cost ratios in the industry and CEO Mike Corbat has a reputation for clutching the purse strings tightly. They say a tiger never changes his stripes, but who knows? Maybe Corbat will be in a generous mood if the bank's 4Q results are a pleasant surprise.
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