This year will be another bummer on Wall Street, with bankers facing bonuses that could shrink as much as 25% as dealmaking dries up amid surging interest rates, according to a new survey.
Investment bankers will get hit hardest, with year-end bonuses dropping between 15% and 25%, according to Johnson Associates, the compensation consulting firm behind the report.
Workers in retail and commercial banking, meanwhile, could see spikes as high as 10%.
Most Wall Street professionals will have to wait another year for a rebound in year-end bonuses, said Alan Johnson, managing director of the firm. For most it will be another disappointing year.
While Investment banking advisory continues to be in the doldrums, investment banking underwriters, who have been raising debt financing, can expect a small pay bump of 5% to 10%, the study said.
Meanwhile, retail deposits have surged at major commercial banks and those higher margins will boost pay. But for regional bankers doing similar work at smaller institutions pay will decline 10% to 20% amid massive outflows of cash, according to the study.
Hedge fund bonuses will be tied to the funds performance and could either dip 5% or increase 5% depending on the funds year. Equities trading bonuses will fall between 5% and 10% while fixed income trading bonuses will be relatively flat, the survey found.
Wealth management which has attracted new clients this year could see a 5% increase in bonuses. Asset management which saw profits fall this year will see a marginal decline in bonuses of between 5% and 10%.
Even as ballooning interest rates have stalled mergers and acquisitions and IPOs, higher interest rates mean more deposits and greater margins on those deposits for banks which boosts retail banking revenue.
While the traditional masters of the universe may see a decline in their year-end compensation, less glamorous sectors like retail banking may be raking it in, the report adds.
Incentive payments throughout the industry will be mostly lower to flat with three notable exceptions — large commercial and retail bankers, investment banking equity underwriters and wealth management pros, who can expect a bump this year, Johnson adds.
Over the last few years, those on Wall Street have been whipsawed when it comes to bonuses — which typically make up a majority of a financier’s salary.
Just two years ago, firms were handing out record bonuses as financial giants like Goldman Sachs and JPMorgan grappled with a dire lack of bankers amid a massive labor shortage.
In 2021, the historic tide of mergers, IPOs, spinoffs and other big strategic deals pushed banker bonuses 30 to 35% higher than their bonuses from 2020.
Equity sales and trading and investment banking advisors also got a healthy bonus bump of 20 to 25 that year. Asset management professionals, including those managing hedge funds and private equity funds, saw a 15% bump.
But the good times came to an end last year with some bonuses falling by as much as 45% as financiers fretted about the possibility of a looming recession. Unfortunately for those on Wall Street, that downward trend is expected to continue.
The declining payouts come as many banks — including Goldman Sachs and Citigroup — cull employees to cut costs.