One industry expert said Wall Street bonuses will be severely reduced this year — with more than 45% of investment bankers’ compensation shaved off.
Bankers expect their worst payouts in a decade since hitting record highs in 2021 amid huge deals and a sharp shortage of talent on Wall Street, according to new data from compensation consulting firm Johnson Associates.
Investment banking underwriters – who got the biggest hit with a 35% bonus in 2021 amid a boom in mergers and acquisitions – will see the biggest decline this year in the form of a deal-making crater, the firm predicted. Johnson Associates Projects Bank underwriters will see a bonus drop of up to 45%.
“People thought it might be a more normal year after 2021, but they didn’t expect to see it that far away,” Johnson Associates’ Alan Johnson told The Post. “This is one of the top two worst years we’ve seen in the last decade.”
The firm said that asset management professionals and those working with ultra high net worth individuals will see a drop of around 15% to 20%.
Bonuses in large private equity firms are expected to remain largely flat – but could be as low as 10%.
It is a dramatic turn of events for an industry that came back to life amid the pandemic. But the bonus reflects the performance of banks – and banks are struggling this year.
And the pain increases as the inflation skyrockets.
“This year is different because of inflation,” Johnson said. “It’s one thing for bonuses to drop from 20% to 40% but massive inflation makes it worse.”
Among the groups that will get better compensation this year is the sales and trading division, which saw profits fall in 2021 due to the volatility of the pandemic. But now, they are taking advantage of the market uncertainty – some fixed-income traders expect bonuses to be 20% higher than last year.
Those working in hedge funds – where alternative investments have attracted money – can also increase bank bonuses by up to 20%.
Equity traders will see a slight jump of 5% to 10% this year. Fixed-income, which reported disappointing earnings across the board in 2021, is expected to offset last year’s losses — with traders making 15% to 20% more this year.
Wall Street’s war for talent is also slowing as the era of massive bonuses comes to a screeching halt.
Last year, top banks like Morgan Stanley and Goldman Sachs spent about 20% to 25% more on compensation — significantly increasing the cost of expenses. This year, they may be looking to make the cut.
“The big question is, what will 2023 be like? No one is optimistic,” Johnson said.