Media Moves

Coverage: Wall Street bonus season

November 10, 2014

Posted by Liz Hester

It’s that time of year again where everyone starts talking about Wall Street bonuses. The picture is mixed for many on the street with M&A and private-equity bankers looking to pull in the numbers while those at hedge funds are expecting less.

Justin Baer had this story for the The Wall Street Journal:

Many of Wall Street’s deal makers are heading toward a happy year-end bonus season, while traders and hedge-fund employees are bracing for a disappointing payout.

Investment bankers, including those who advise companies on mergers and underwrite stock offerings, and private-equity employees should see bonuses rise as much as 15% from a year ago, according to an analysis by Johnson Associates, a New York compensation-consulting firm.

Bonuses paid to fixed-income and stock traders may decline by as much as 10%, Johnson Associates said. Hedge-fund payouts should range from an increase of 5% to a decrease of 10%, the firm said.

The study echoes many of the same themes sounded by each of the biggest banks during their quarterly results. A stock-market rally and mounting confidence in the economy’s direction have emboldened corporate chiefs to pursue acquisitions.

While trading desks show signs of life, there hasn’t been enough business to wrest the securities industry out of a multiyear downturn. Banks such as Goldman Sachs Group Inc. and Morgan Stanley reported third-quarter profits that beat analysts’ expectations in part because trading revenue picked up from a year earlier. After a slow summer, the markets turned choppier in the final weeks of the period, giving traders more opportunities to profit from swings in prices of stocks, bonds and other securities. Few bank executives, though, have been willing to predict a more permanent revival. And the amount banks are setting aside for employee pay and benefits continues to decline.

Neha Dimri and Anil D’Silva wrote for Reuters that the bonus picture varies depending on the department:

Bonuses for employees in low-risk, fee-heavy businesses such as asset management could rise 5-10 percent, while professionals in the volatile and risk-heavy business of fixed-income trading can expect bonuses to remain flat or fall by as much as 10 percent, according to the forecast.

The declining fortunes of bond traders, once dubbed “Masters of the Universe” at investment banks, and the rising prominence of wealth managers show how Wall Street is changing after the financial crisis.

Equity traders are also expected to take a cut, with their bonuses likely to fall by 10 percent this year.

But investment banking underwriters could see a 5-15 percent rise in bonuses, thanks to an increase in capital-raising activity, especially initial public offerings, this year.

Bonuses for asset managers are also expected to rise by 5-15 percent as increased assets under management and soaring equity markets boost results of cost-efficient firms.

Johnson Associates’ forecasts are based on a survey of eight of the largest banks and 10 of the largest asset-management firms in the United States.

The New York Times story by Nathaniel Popper said that the outcome was exactly what regulators were looking for when they enacted financial reform:

The changing fortunes on Wall Street are largely consistent with what regulators hoped to see in the wake of the financial crisis. New rules have discouraged banks from doing the sort of risky trading that used to result in big profits.

The regulations have instead encouraged banks to emphasize businesses that serve clients, such as wealth management and deal-making. These more staid business units do not require the banks to put any of their own money at risk.

Rising stock markets have also helped these businesses, as companies have looked to raise more money and make acquisitions.

“You are making money dealing with clients — it’s a more stable business,” Mr. Johnson said.

This shift could create problems for New York City, which relies on the taxes paid by Wall Street firms. The New York State comptroller said last month that bank profits fell 13 percent in the first half of 2014 from the period a year earlier, while the industry shed 2,600 jobs.

The segments of the financial industry that are experiencing more growth are not as heavily focused in New York. Asset management firms like Pimco and the Capital Group are based in California, while Fidelity and State Street heave headquarters in Boston. BlackRock, however, the largest player in exchange-traded funds, or E.T.F.s, is based in the city.

While the rest of the world might not care about the fate of Wall Street bankers and traders, journalists and many others certainly like to speculate about what they’re making. As The New York Times story points out, regulators are likely glad to see their laws have had the intended effect, but those in New York state might begin to feel some of the unintended consequences from lower tax revenue and a shrinking finance industry.

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