By Lauren Tara LaCapra
NEW YORK (Reuters) - Wall Street's biggest risk takers - its bond traders - will probably see their bonuses drop this year, while people in safer roles, such as money managers, will likely get a boost, according to a forecast by compensation consulting firm Johnson Associates.
Overall, it said, individual Wall Street bonuses may rise 5 to 10 percent, on average, compared with last year, as the industry continues its halting recovery from the 2007-2009 financial crisis. Top executives of Wall Street firms will see bonuses rise by as much as 5 percent, Johnson Associates said.
But Alan Johnson, who heads the firm, said there is a wide disparity in payouts among business lines. The bonus spectrum reflects new priorities for Wall Street as much as market conditions, he said.
Employees in low-risk, fee-heavy businesses such as asset management and retail brokerages will probably see bonuses rise by 15 percent or more, while those in the volatile and risk-heavy business of fixed-income trading are expected to see bonuses decline by the same amount, according to the forecasts.
The declining fortunes of bond traders, once dubbed "Masters of the Universe" at investment banks, and the rising fortunes of wealth managers show how Wall Street is changing after the financial crisis, Johnson noted. Banks are also emphasizing businesses that put little money at risk and deliver steady profits, while exiting areas of trading that require a lot of capital and can lead to big swings in the firms' profits and losses, he added.
"From a regulator's perspective, that's what you want," said Johnson. "You want the banks to be in client businesses that use other people's money so that they're not too dependent on trading."
Rising stock markets and weakening fixed-income markets have also been a factor in helping retail brokers and hurting bond traders, Johnson said.
Banks including Goldman Sachs Group Inc, Morgan Stanley, Citigroup Inc, Bank of America Corp and JPMorgan Chase & Co reported weak fixed-income trading results last quarter. Some also said they set aside much less cash for compensation in their Wall Street businesses, indicating that fewer dollars of revenue will be spent on employees this year.
Banks have cut thousands of jobs over the past three years, with a particular focus on high-earners, Johnson said. That has allowed them to boost bonuses to mid-level employees without increasing overall compensation costs dramatically.
"When the number of people who make a lot goes down, it really moves the needle," he said.
UNDERWRITERS DOING BETTER, M&A BANKERS WORSE
Employees in investment banking underwriting roles will likely see bonuses rise by 10 to 15 percent, according to Johnson's forecasts. Those in prime brokerage and private equity will likely see bonuses rise by 5 to 10 percent, while equities traders and hedge fund employees will likely see bonuses rise by 5 to 15 percent. Commercial and retail bankers will get bonuses in a range of flat to up 5 percent.
The only employees apart from fixed-income traders who are likely to face bonus cuts are investment bankers who work on merger deals, Johnson Associates said. Those bankers will probably see bonuses drop by 5 to 10 percent.
Johnson's forecasts are based on a survey of eight of the largest banks and 10 of the largest asset-management firms in the U.S.
While 2014 forecasts are preliminary, Johnson expects gradual improvement across many business lines, with strategic hiring in the U.S. and aggressive hiring abroad where companies are expanding or shifting operations.
(Reporting by Lauren Tara LaCapra; Editing by Dan Wilchins and Ken Wills)
- Wall Street
- Alan Johnson