2017 bonus announcements are fast approaching. Who will be lucky? Who will be luckless? Here's our roundup of all the portents for performance payments for 2017.
Bank of America Merrill Lynch: Good news for investment bankers, less so for traders
What’s actually been said? Nothing at all. BofA’s executives have made no public references to likely bonus levels for 2017.
Can they afford to pay? Yes, but only really in global banking (equity capital markets, debt capital markets and M&A). As we noted at the time of BofA’s third quarter results, its investment bankers have done exceptionally well, with profits increasing nearly 30% year-on-year in the first nine months. Its traders have done less well: global markets profits were down 9%. The bank said it’s investing heavily in technology for the trading platform, and these technology investments are likely to take precedence over paying staff.
Who deserves to get paid at BofA? Research by market intelligence firm Tricumen shows Bank of America excelling in three areas in 2017: debt capital markets, M&A and FX trading. If bonuses are targeted on a divisional basis the recipients should probably be here.
Barclays: Bad news for at least half the people in the investment bank
What’s actually been said? Barclays’ senior management have explicitly indicated that bonuses will be bad this year. During the bank’s third quarter call with investors, CFO Tushar Morzaria said the bank had made “significant cuts” to its “performance pay accrual.” This was subsequently clarified by CEO Jes Staley, who said bonuses accruals were cut 25% in the third quarter. Staley added that this was unlikely to be repeated in fourth quarter. However, chief executive of the investment bank Tim Throsby said this week that the bottom performing half of Barclays' bankers and traders will be paid down this year.
Can they afford to pay? Not really. Profits were down nearly 8% at Barclays’ corporate and investment bank in the first nine months of this year compared to last. Similarly, the cost ratio in the investment bank was 74% in the third quarter, up from 68% a year earlier. Staley said that Barclays has under-invested in technology and needs to make amends, so this will (again) surely take precedence over paying staff.
Who deserves to get paid at Barclays? Tricumen suggests that almost no one deserves to get paid at Barclays. In the first nine months of the year, it suggests almost every Barclays business under-performed rivals in revenue terms. The one exception was cash equities, which Tricumen says out-performed. However, cash equities is increasingly a reflection of investment in trading systems and outperformance here may be ascribed to the bank rather than to individuals. Things aren’t helped by the fact that Barclays has done some big external hiring in 2017: bonuses that might have been paid to incumbents are likely to have been diverted to buying-in new talent from outside.
BNP Paribas: Cost squeeze is a bad omen
What’s actually been said? Nothing at all, but costs are being squeezed. BNP plans to extract around €108m in costs from its investment bank in the fourth quarter. This doesn’t augur well for 2017 bonuses.
Can they afford to pay? Yes. Profits in the corporate and investment bank were up nearly 16% in the first nine months of 2017 compared to the previous year. However, they fell 35% year-on-year in the third quarter, a shock that’s likely to discourage generosity when the bonus pool is being decided.
Who deserves to get paid at BNP Paribas? Tricumen suggests there are a few business areas at BNP which have done better than the market (in revenue terms) this year. These include: securitization, rates, equity derivatives, and prime services.
Credit Suisse: Pay will be flat (at best)
What’s actually been said? Credit Suisse CEO Tidjane Thiam has explicitly said that his bankers shouldn’t expect bigger bonuses this year. In an interview with Bloomberg, Thiam said Credit Suisse staff should expect a “balance”: “You should not expect anything spectacular, but something fair. Not a big increase compared to the previous year.” This balance comes as CS emerges from two years of restructuring and continues to take costs out of the investment bank. "Balance" may be optimistic: in the first nine months of the year, average total pay in Credit Suisse’s global markets division was down 10% to CHF160k, while average pay in the investment banking and capital markets division was down 7% to CHF290k.
Can they afford to pay? Yes they can. Profits in investment banking and capital markets were up 140% in the first nine months of the year compared to last. Profits in global banking and markets were up 1,400% after a big writedown last year.
Who deserves to get paid at Credit Suisse? Tricumen suggests only a handful of Credit Suisse businesses outperformed in revenue terms during the first nine months of this year. They were: debt capital markets (loans), securitisation, and credit.
Citi: Can afford to pay, but probably won't
What’s actually been said? Nothing. Citi has said nothing about this year’s bonuses. Nor does it break out compensation in the investment bank.
Can they afford to pay? Yes they can. Profits at Citi’s institutional clients group were up 24% year-on-year in the first nine months and 15% in the third quarter. However, Citi’s investment bank has one of the lowest cost ratios in the industry and CEO Mike Corbat has a reputation for parsimony.
Who deserves to get paid at Citi? To the extent that bonuses are awarded for revenue outperformance, Tricumen suggests a handful of businesses in Citi’s investment banking division (IBD) deserve to be rewarded. The bank’s debt capital markets (DCM) bankers, M&A bankers and equity capital markets (ECM) bankers outperformed the rest.
Deutsche Bank: Says it will pay, could still have second thoughts
What’s actually been said? After last year, when performance-related bonuses were all but eliminated at Deutsche Bank, the big question is what happens to bonuses for 2017. Back in February, head of the corporate and investment bank, Marcus Schenck, promised that bonuses will be “back to normal” this year. This is still expected to be the case. During the bank's third quarter investor call, CFO James Von Moltke said Deutsche is, “highly cognizant that we need to compensate our employees fairly and incentivize.” Moltke then added that, “decisions are still outstanding in terms of comp for the year,” and that investors should be aware that last year’s fourth quarter was flattered by the decision to eliminate bonuses – suggesting this won’t be repeated. Subsequently, Deutsche CEO John Cryan complained about the European Union’s rules on deferred bonuses, which he said make the bank uncompetitive. Given that Deutsche has actively chosen to implement a harsher-than-necessary version of these rules, with five year “cliff” deferrals for senior staff, there’s a possibility that DB will relax its vesting schedule.
Can they afford to pay? Not really. Profits in Deutsche’s corporate and investment bank fell 25% year-on-year in the first nine months of the year. The German bank has spent heavily on hiring people in (24 directors and managing directors have been added in U.S. corporate finance alone). So far, it has little to show for it. Deutsche's most recent hire, Peter Selman, will lead the global equities business, where revenues fell 18% in the first half of this year. Selman’s appointment so close to bonus time suggests equities traders stand to be particularly disappointed this year. There are some ominous general signs: average pay per head in Deutsche’s corporate and investment bank fell 7% to €126k in the first nine months of this year compared to last.
Who deserves to get paid at Deutsche? No one really. Tricumen says almost every business at Deutsche Bank underperformed the market in the first nine months of this year. The exceptions were DCM and FX, which performed on a par with rivals.
Goldman Sachs: Spending its money on outside hires, but says it values existing staff
What’s actually been said? During Goldman’s third quarter call, CFO Marty Chavez said there might be some “modest upwards pressure” on the proportion of revenues Goldman spends on compensation as it brings in extra hires from outside. Accordingly, the compensation ratio rose to 41% in the first nine months, up from 40% a year earlier, and pay per head rose 3% to $271k.
Can they afford to pay? Yes, they can: profits were up 18% year-on-year in the first nine months of 2017 compared to 2016. Whether Goldman will want to pay is another question: with questions raised about its business model, the firm is under pressure to keep shareholders happy. This year’s bumper crop of managing director promotions can be seen as an attempt to incentivize staff through channels other than compensation.
Who deserves to get paid at Goldman Sachs? Despite raised eyebrows about Goldman’s performance, Tricumen says various of its businesses outperformed in revenue terms this year. They included: debt capital markets, rates trading, cash equities trading and principal investments.
J.P. Morgan: Spending on tech. The poor performance of the investment bank doesn't augur well
What’s actually been said? Nothing really, but during J.P. Morgan’s third quarter call CFO Marianne Lake said the bank continues to invest in both coverage bankers and technology, suggesting that compensation might therefore be squeezed. J.P. Morgan doesn’t break out compensation per head for its investment bank staff any more, but in the first nine months of the year average compensation across the combined investment and corporate bank fell 1% to $153k.
Can they afford to pay? Yes, they can. Profits at J.P. Morgan’s corporate and investment bank rose 15% year-on-year in the first nine months, and costs fell to 69% of revenues.
Who deserves to get paid at J.P. Morgan? Almost no one. Tricumen says only J.P. Morgan’s prime brokerage business outperformed the market. All other investment banking businesses either under-performed or performed on a par with rivals
Morgan Stanley. Can afford to pay, but has historical aversion to doing so
What’s been said: Nothing, However, Morgan Stanley CEO James Gorman has an historic aversion to bonuses, having declared that bankers were overpaid when he arrived in 2012. Even so, compensation spending in Morgan Stanley’s institutional securities division was up 9% year-on-year in the first nine months, which would seem to augur well.
Can they afford to pay? Absolutely: profits were up 25% year-on-year in the first three quarters.
Who deserves to get paid at Morgan Stanley? Tricumen says Morgan Stanley’s ECM bankers, DCM bankers and rates, credit and FX traders all outperformed the market this year.
UBS: Quietly increasing bonuses in the investment bank
What’s been said: In the notes to its third quarter results, UBS said performance pay in the investment bank has been increased this year. Nonetheless, compensation per head was flat during the first nine months, at CHF476k.
Can they afford to pay? In theory, yes: profits rose 72% in the first three quarters compared to 2016. However, this was largely the result of accounting changes, absent which profits were still up – but by a more modest 15%.
Who deserves to get paid at UBS? Tricumen says UBS's ECM bankers, M&A bankers and equity derivatives traders all outperformed.
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