Investment bankers will receive bonuses that are up to 50% smaller than in 2021, and they are the fortunate ones. This year’s slump in equity and debt issuance has caused a decline in issuance of both.
According to a report released on Thursday by compensation consultancy Johnson Associates, pay reductions are anticipated across a significant portion of the banking industry as bonus season draws near.
According to the research, incentives for bankers who underwrite securities might be reduced by as much as 40% to 45 %, while bonuses for merger counsellors could be reduced by as much as 20% to 25%. Depending on the size of their firms, employees in private equity may experience declines of up to 10% while those in asset management would suffer reductions of 15% to 20%.
“There are going to be a lot of people who are down 50%,” in an interview, Alan Johnson, managing director of the company bearing his name, remarked. “What’s unusual about this is that it comes so soon after a terrific year last year. That, plus you have high inflation eating into people’s compensation.”
Wall Street is struggling with sharp losses in capital market activity as IPOs slowed to a standstill, the rate of acquisitions decreased, and equities saw their worst first half since 1970. The situation perfectly encapsulates the feast-or-famine nature of the sector, which has enjoyed a two-year bull market for acquisitions thanks to the trillions of dollars in support for companies and markets that were released during the pandemic.
As a result, the six largest U.S. banks increased its workforce by a total of 59,757 workers between the beginning of 2020 and the middle of 2022, per company filings.
As the future of investment banking remains gloomy, they may now be obliged to make employment cuts.
“We will have layoffs in some parts of Wall Street,” according to Johnson, there might be a 5 to 10 percent reduction in workforce due to job layoffs. “I think many firms will want their headcount to be lower by February than it was this year.”
Using information from the Securities Industry and Financial Markets Association, another seasoned Wall Street consultant, Octavio Marenzi of Opimas, claimed that stocks issuance in July was even worse than it had been in the months before.
According to SIFMA, the amount of IPOs issued this year has decreased by 95% to $4.9 billion, while the amount of stock issued overall has decreased by 80% to $57.7 billion.
“You can expect to hear announcements regarding layoffs in the next few weeks,” Marenzi said. “There is no indication that things are about to improve in investment banking.”
A raise in salary
But the news hasn’t always been negative. Due to wage inflation and the need to retain employees, businesses will need to increase workers’ base salaries by about 5%, according to Johnson.
Furthermore, some parts of Wall Street have benefited from the current climate. Although high volatility and choppy markets may deter businesses from issuing debt, they provide favourable conditions for fixed income traders.
According to the article, bonuses for bond traders and sales staff would grow by 15 to 20 percent, while those for employees who trade stocks may see hikes of 5 to 10 percent. Bonuses for traders at hedge funds using a macro or quantitative approach may increase by 10% to 20%.
Investment banks, hedge funds, and asset managers rely on consultants to give them information on what rivals are offering in terms of bonuses and severance packages so they can better build their own.
Johnson Associates computes the anticipated year-end incentives on a headcount-adjusted basis using public data from banks and asset management companies as well as proprietary client insights.
“My clients realize it will be a very difficult year,” Johnson said. “The challenge is how you communicate this and make sure the right people get paid.”