Bankers who appear to be in optimistic mood about the scale of their annual bonuses this year might need to brace themselves for disappointment instead.
A recent poll of bankers by pay data firm Emolument showed that directors in investment banking at U.S. banks were looking forward to a 14% increase in their bonus in 2020 compared with the bonus received in 2019. Their average expected bonus this year was £196,000.
In contrast, European bankers saw few reasons to be cheerful, expecting a decline of 2.6% in their bonuses this year compared with 2019, to an average of £113,000.
Equities departments hit
But those U.S. bankers might be in for an unwelcome surprise, according to another survey from compensation consultancy Johnson Associates. It has forecast that investment bankers working in underwriting can expect to see declines of up to 10% their bonuses, and those working in advisory of up to 5%. Bankers working in equities could be particularly badly hit with a potential fall of 15%.
A survey from recruitment firm Options Group, cited by efinancialcareers, suggests only bonuses in credit and securitized products will be up for U.S. banks, and then only by 2%. It, too, predicts a rough ride for equities, expecting a fall of 9.5% for bonuses for equities traders in the U.S. and an even sharper fall in Europe of 15%. Globally, said Options, fixed income divisions are likely to see bigger bonuses than equities operations.
Most U.S. banks award bonuses in January while European banks tend to be later, in February or March. At least one bank, RBC Capital Markets LLC, has already awarded its bonuses which are reportedly down significantly, according to efinancialcareers.
Europe's banks lag US rivals
European investment banks have long lagged their U.S. rivals in profitability, but the past year has been particularly brutal for some leading European firms.
Deutsche Bank AG, after a torrid year in which its talks about a merger with Commerzbank AG collapsed, is considering cutting up to 20% of its bonus pool as it looks to reduce costs by €1.3 billion, according to sources speaking to Bloomberg News. This could lead to an even deeper cut in the bonus pool than the previous year when it shrank by 14% as it paid out €1.9 billion in bonuses.
The bank has suspended its dividend for 2019 and 2020 and will incur restructuring costs of €5.4 billion as it aims to ax 18,000 jobs by 2022. In the first nine months of the year Deutsche's investment banking revenue fell 11% while costs fell by 4%.
Credit Suisse Group AG, meanwhile, is expected to report a loss at its investment banking and capital markets unit for the full year after it fell to CHF102 million loss in the first nine months of 2019, the Financial Times reported. The bank, which has ousted investment banking head James Amine, has said the accrued bonus pool has been shrunk "significantly" to reflect the division's poor performance.
Royal Bank of Scotland Group PLC’s investment banking arm, NatWest Markets, has seen its CEO Chris Marks and CFO Richard Place ousted by newly-appointed RBS boss Alison Rose and the unit's performance has been strongly criticized by analysts, with one calling its performance "deplorable." The future of RBS' investment banking business has been under threat for some time as the bank concentrates on its domestic operations and Rose's strategy for the unit will be unveiled in February.
Barclays PLC's bankers could have reason to be optimistic about their bonuses. Under CEO Jes Staley, the bank has had a good year with its investment banking arm ending the year as Europe's leading investment bank in the U.S. It was ranked in sixth place by investment banking fees last year, moving ahead of Credit Suisse, according to Dealogic figures cited by efinancialcareers. It showed particular improvement in its U.S. operations which climbed one place to fifth in the U.S. banking fee rankings, displacing Citigroup Inc.