Will Wall Street’s hottest traders settle for a mere 30% raise?
Bank traders who saved their firms’ bottom lines in the first half of 2020 are facing a reality of the pandemic: Record revenue won’t mean record bonuses, with most businesses facing declines of 10% or more. Even bond traders are likely to find year-end rewards don’t line up with the cash they generated, as firms face loan losses and pressure on costs.
“If your division hits the ball out of the park for the year -- you’re probably better off when that happens in a good year for the overall firm,” said Bonnie Schindler, principal at Compensation Advisory Partners. “Fixed-income traders may feel a bit unlucky having that great performance this year.”
That message has been percolating in recent weeks -- visible in fresh projections by Wall Street compensation consultants such as Schindler. They see traders who slogged through years of sedate markets now facing the prospect of having their big payoff tempered by tough times in other parts of the business. Deal advisory and lending operations are struggling. Banks are trying to avoid firings and dividend cuts.
It’s enough to frustrate star traders, leaving them vulnerable to poaching by hedge funds willing to pay more.
‘A Lot of Discontent’
“People who have taken compensation hits over the years are not going to see the increase they’re expecting,” said Michael Karp, chief executive officer of recruiter Options Group, who predicts more defections by managing directors who run teams. “That’s where there will be a lot of discontent.”
Equities traders at major U.S. banks largely succeeded in navigating the most tumultuous markets in a generation as the pandemic triggered lockdowns in March and sent stocks swooning, only to later rebound. But that performance was soon overshadowed by fixed-income trading. Federal Reserve intervention in credit markets helped banks arrange a slew of fundraisings for desperate companies, giving those traders ample chances to buy and sell newly issued bonds.
In the second quarter, traders at three top fixed-income trading houses -- JPMorgan Chase & Co., Citigroup Inc. and Goldman Sachs Group Inc. -- generated about $10 billion in additional revenue. The windfall helped keep JPMorgan and Citigroup profitable despite massive loan-loss provisions.
Fixed-income traders may see their year-end bonuses jump 25% to 30%, according to Alan Johnson, founder of compensation consultant Johnson Associates. Yet those traders are likely to expect increases of 50% or more, he said.
“They’re going to be paid somewhat less than their results on an isolated basis,” Johnson said. “They will be disgruntled.”