The Strategist

Wall Street bonuses continue to go down


11/07/2016 - 15:15



By the end of 2016, Wall Street bonuses could continue falling for the third consecutive year. This trend is reflecting reduction of number of M&A transactions, limited trading activity and lower profitability of hedge funds.



Michael Daddino
Michael Daddino
According to The New York Times, citing Johnson Associates consulting firm, payments are projected to decrease by 5-10% compared to the previous year. Since 2014, bonuses for Wall Street employees has declined at substantially similar rate.

Forecast of Johnson Associates is confirmed by October report of New York State Financial Control Board. According to the paper, in the first half of this year Wall Street companies reduced bonus payments by 7% compared to last year.

M&A activity has been growing, yet bankers may claim their their money only after deals are closed. This year, antitrust officials have foiled several major mergers, including Halliburton-Baker Hughes deal worth $ 35 billion, and consolidation of major medical insurers Anthem, Cigna, Aetna and Humana. Pfizer and Allergan refused the largest transaction after the Ministry of Finance announced new tax rules, thus depriving bankers around $ 200 million.

Lull in trading is also lowering bonus payments. Many companies are simply staying away from bidding, and investors are refusing hedge funds’ services due to low profitability and high fees.

Johnson Associates’ report says that some of major cuts in bonuses for 2016 will affect investment banking, underwriting, hedge funds and professionals in the shares.

Bonuses in underwriting for the year may be reduced by more than 20% compared to last year. Trading is observing lower levels of customer activity, especially in stock trading, which means that bonuses in this sphere can be lowered from 5% to 15%. Bonuses from advice on M&A transactions will be cut by 10%.

Alan Johnson, founder of Johnson Associates, describes the situation as "malaise", which is unlikely to dissolve soon. He is sure that the trend will remain the same during next couple of years. Pressure on profits will persist, so it’s not a surprise that bonus payments in 2017 will be lower than in 2016.

In recent years, banks have faced pressure from competitors and customers. The financial institutions had to sacrifices bonuses, which, surprisingly, helped understand how companies could meet needs of their clients. 

Earlier, New York State Financial Control Board calculated that average bonus for employees of the securities industry in the New York area totaled $ 146.2 thousand in 2015. Average salary was $ 388 thousand. Both figures were down from 2014, yet were much higher than in any other industry in this area.

During 25 years (1990 to 2014), real wages of employees of the US financial sphere had increased by 117%, while growth was 21% in all other sectors, Bloomberg reported, citing data from the US Bureau of Labor Statistics. 

Median income of an American banker or broker amounted to approximately $ 264 thousand in 2014. This is 5.2 times more than $ 51 thousand, received during the same year by average American working in other industries. The largest income gap is marked in New York City. According to Thomas DiNapoli, Comptroller of the state of New York, income of an employee from a New York investment bank or a financial company on average exceeded $ 404 th. in 2014. This is 5.6 times higher than average income in all other private companies in New York ($ 72 th.).

Even significant reduction in bonuses didn’t help to shorten distance between incomes of financiers and other New Yorkers, Bloomberg notes. Interviewed experts pointed out that all major participants of the US election campaign are now using dissatisfaction of the masses.

In turn, representatives of the financial industry say that lower wages would prevent banks from hiring the best professionals, in particular, graduates from Columbia and Harvard universities. Now, even high payments are not able to turn attention of professionals from Silicon Valley to Wall Street.

source: bloomberg.com, nytimes.com




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