Yesterday, Royal Bank of Canada (RBC) became the first big bank to report its full year results for 2017. It said the going at RBC Capital Markets has been ok: trading revenues were flat for the year versus 2016; underwriting and advisory revenues were up 12%. So far, so mediocre. Instead, what was noticeable were the bonuses. Especially, the deferred bonuses.
RBC doesn't break out bonuses for its capital markets division (ie. its investment bank) specifically. However, bonuses for the bank as a whole have risen and RBC said several times that its capital markets professionals were beneficiaries of this.
Across RBC as a whole, the bonus pool went from CA$4.6bn (US$3.5bn) in 2016, to CA$5.2bn for this year - an increase of 13%. Spending on deferred bonuses, however, went from CA$728m to CA$1.2bn: an increase of 65%.
RBC's deferred bonuses are broken into several categories. Spending on those paid specifically to capital markets employees under a "deferred bonus plan" which vests in equal chunks over three years, rose from CA$195k to CA343k. So-called "performance deferred share awards" with vest only at the end of three years and are paid to key employees across the bank rose 28%, to CA$312.
Unusually among banks today, RBC also offers "key employees" stock options. These can be very lucrative (witness Lloyd Blankfein's cashing-in of $5m of ancient Goldman Sachs stock options earlier this week.) The latest options, issued at the end of October, are priced at CA$90. RBC's stock price is CA$102, so recipients are already 13% richer on paper. They should be pleased - although they'll have to wait four years until the options vest.
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