After having the cash portion of their bonuses capped at just over $100,000 last year, Barclays investment bankers in the U.S. are looking forward to a more bountiful Christmas. If they don’t get their wishes fulfilled, many may exit the firm, according to recruiters and sources within the bank.
Last year’s bonus cap forced some employees to borrow cash from the firm against their deferred compensation to continue financing their lifestyles, said one Barclays employee who asked not to be quoted for fear of a layoff. Few want to repeat that experience. “I don’t think there is any doubt that the structure of compensation for investment banking was off market,” said the employee.
This year, U.S. bankers expect to get paid larger bonuses, particularly in the mergers and acquisitions division, which has been performing better than other parts of the bank. If Barclays doesn’t change the structure of its bonus pool, departures may soon follow. “At my level, we were told last year to wait and see” whether cash bonuses would continue to be restricted, said the employee. “If we don’t see them this year, it will be ugly.”
Barclays declined to comment on bonus plans.
During the first three quarters of 2012, Barclays’ M&A business grew 17% compared to the same period last year, with roughly two-thirds of the fees generated by the Americas group. That contrasts with J.P. Morgan, where fees dropped 32%. Morgan Stanley and Bank of America Merrill Lynch saw a 34% and 29% drop, respectively. On average, fees fell by 21% among the top 10 investment banks during the first three quarters of the year, according to league tables complied by Financial Times.
As a result, bankers are frustrated with sharing the bonus pool with colleagues in emerging markets who aren’t generating the same revenue, said the Barclays employee. Recruiters concur that last year’s bonuses were particularly low.
“It was pretty extreme how low the [cash cap] number was,” said one recruiter who works with Barclays. “They are aware they have a problem; whether they can do anything about it is not clear.” With global layoffs looming, it will be difficult politically to increase cash bonuses in the U.S., said the recruiter. “My hunch is they can’t do anything about it. My hunch is people start leaving.”
U.S. investment bankers at Barclays are already receiving calls. “Some other banks are circling to potentially pick off people that are feeling [frustrated],” said the same recruiter.
Still, the jobs market isn't as robust as it was. “They’re probably frustrated that they’re not getting paid,” said another recruiter who has worked with Barclays, “but what are they going to do about it? Goldman, Citi, Morgan – they’re not hiring.” Two years ago, investment bankers at Barclays could get six job offers overnight, the recruiter added. “But not in this environment.”
Barclays is expected to cut as many as 2,000 jobs within its investment banking unit early next year, according to The Wall Street Journal, with most headcount reductions occurring in Asia and continental Europe.
A firm cap on cash payouts has cost Barclays before. The U.K. firm lost most of its top European gas and power traders over the last two years due, in part, to its unappealing bonus structure, according to Bloomberg.