Wall Street Bonuses to Decline

We found this article in today’s Wall Street Journal.

Should we feel sorry for these guys?

jamiedimonjohnmackbankingceotestifycmvedd-lx6xlFrom left to right: Goldman Sachs CEO and Chairman Lloyd Blankfein, J.P.Morgan Chase & Co. CEO and Chairman Jamie Dimon, Bank of New York CEO Robert P. Kelly, Bank of America CEO Ken Lewis, State Street Corporation CEO and Chairman Ronald Logue, Morgan Stanley CEO and Chairman John Mack, Citigroup CEO Vikram Pandit, Wells Fargo CEO and President John Stumpf, at a congressional hearing in 2009.

By LIZ HOFFMAn,  Nov. 6, 2016

Bonus season on Wall Street is going to be a downer. Again.

Year-end bonuses are expected to be an average 5% to 10% smaller than last year, according to consulting firm Johnson Associates Inc.

The declines still leave employees at firms such as Goldman Sachs Group Inc., where the average worker earned $350,000 last year, among the best-paid Americans. But they highlight the challenges facing banks—and the dwindling perks of working at one.

“If you listen to politicians, you’d think bankers are still making money like it’s 2007. They’re not,” said Alan Johnson, who runs the firm and helps banks design compensation programs. “You can make this kind of money working at PepsiCo , and life at PepsiCo is lot more pleasant.”

The bonus pool for banks has dwindled more than 30% since 2009, when record payouts against the backdrop of a worsening economy heaped public and political scorn on big banks.

Since then, regulation has crimped banks’ trading profits, while tepid global growth has hurt their lending and capital-raising arms. Meanwhile, a shift toward simpler, low-fee investment models has reined in the hedge funds that once paid big fees to banks’ stock-trading desks.

The six largest U.S. banks have made less through the first nine months of 2016 than they did last year. Compensation as a percentage of revenue has declined as well at most firms, meaning employees are getting a smaller slice of a shrinking pie.

In Morgan Stanley ’s investment-banking and trading businesses, 36% of revenue this year has been set aside for compensation, down from 44% in 2013. At J.P. Morgan Chase & Co., that figure has fallen to 27% so far this year from 37% in 2009.

Star performers are still “making a ton of money, but not two tons,” and pay is falling faster for those further down, said Mr. Johnson, who relies on public filings, analyst reports and conversations with client banks to make his estimates.

Meanwhile, banks are freer to cut pay without fear of sparking an exodus. Many U.S. firms are slashing head count, while foreign banks and hedge funds, once a home for Wall Streeters unhappy with their compensation, are in retreat.

Initial public offering bankers will be the hardest hit this year, with bonuses expected to fall by as much as 20% from last year’s payouts, according to Johnson Associates. A preference among Silicon Valley startups to stay private longer has led to a drop in stock sales, which are among the highest-margin events for banks.

Bonuses could fall as much as 15% for stock traders and 10% for bond traders, Mr. Johnson said. Last year, Morgan Stanley fired 25% of its fixed-income traders, and Goldman Sachs has made smaller cuts in the division.

The only good news is for those in bread-and-butter businesses like retail and commercial banking, where bonuses could increase as much as 5%. Loans and deposits have risen this year at banks such as J.P. Morgan, Citigroup Inc. and Bank of America Corp. (Which is, of course, just what banks were originally designed to do.)

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