People walk near the New York Stock Exchange on May 12, 2022 in New York City.
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The investment bankers who have had a crash in equity and debt issuance this year line up with bonuses of up to 50% less than 2021 — and they’re the lucky ones.
Pay cuts are expected across broad sectors of the financial industry as bonus season approaches, according to a report Thursday from compensation consultancy Johnson Associates.
Bankers involved in underwriting securities face bonus cuts of 40% to 45% or more, according to the report, while merger advisors are in line with bonus cuts of 20% to 25%. Asset management workers will see cuts of between 15% and 20%, while private equity workers may see up to 10% reduction, depending on the size of their companies.
“There are going to be a lot of people who are going to drop 50%,” Alan Johnson, managing director of the company of the same name, said in an interview. “What’s unusual about this is that it comes so soon after a great year last year. That, plus you have high inflation that affects people’s compensation.”
Wall Street grapples with sharp drops in capital market activity as initial public offerings slow, the pace of acquisitions slows and stocks have their worst first half since 1970. The moment epitomizes the feast or famine nature of the industry, which has enjoyed a two-year bull market for deals, fueled by trillions of dollars. To support businesses and markets launched during the pandemic.
In response, the six largest US banks combined added 59,757 employees from the beginning of 2020 through mid-2022, according to company filings.
Now, they may have to cut jobs as the investment banking outlook remains bleak.
“We’re going to have layoffs in some parts of Wall Street,” Johnson said, adding that job cuts could reach 5% to 10% of employees. “I think many companies want to have fewer employees by February than they did this year.”
Another veteran Wall Street advisor, Octavio Marenzi of Obimas, said July was worse than the months prior to the stock issue, citing data from the securities industry and the Financial Markets Association.
Initial public offerings are down 95% to $4.9 billion so far this year, while total equity issuance is down 80% to $57.7 billion, according to SIFMA.
“You can expect to hear announcements of layoffs in the next few weeks,” Marenzi said. “There is no sign that things are about to improve in investment banking.”
Marinzi said European investment banks, which have lost market share in recent years to US leaders including Goldman Sachs and JPMorgan Chase, will be the first to collapse.
Credit Suisse is considering plans to cut thousands of jobs over the next few years as part of a strategic review, with a potential focus on middle and back office support roles, according to Bloomberg. The bank is finalizing its plans over the next few months.
However, the news was not uniformly bad. Johnson said companies would have to increase workers’ base salary by about 5% due to wage inflation and retention needs.
Moreover, there were sections of Wall Street that thrived in the current environment. High volatility and volatile markets may discourage companies from issuing debt, but it is a good preparation for fixed income traders.
Bond dealers and sales staff will see bonuses rise by 15% to 20%, while stock trading employees may see increases of 5% to 10%, according to the report. Traders of hedge funds with a macro or quantitative strategy can see their rewards rise by 10% to 20%.
Investment banks, hedge funds, and asset managers rely on consultants to help them organize bonuses and severance packages by giving them insight into what competitors are paying.
Johnson Associates uses public data from banks and asset management companies and ownership insights from clients to calculate projected year-end incentives based on headcount adjustment.
“My clients know it’s going to be a very difficult year,” Johnson said. “The challenge is how to communicate this and make sure the right people get the money.”