European Banks Cut Banker Bonuses, U.S. Firms Expected To Follow Suit

The Covid stimulus gravy train has officially ended, as it was reported this week that top investment banks in Europe are going to be cutting bonuses on a lack of deals in 2023, per Bloomberg.

Names like Societe Generale, UBS and Deutsche all have plans to lower their overall bonuses for 2023, though some divisions that performed well may still see higher compensation, the report says. 

Deutsche Bank Chief Financial Officer James von Moltke reportedly said this week that bonus pay will "reflect performance in 2023". In other words, what have you done for us lately?

“And as you have seen in a number of different areas of the investment banking business in particular in 2023, it has been a difficult market," he added. Revenue at the company's investment bank was down 12% over the first nine months of last year. 

UBS saw similar declines, with investment banking revenue falling 7.3% and Societe Generale saw revenues fall 2.5%. 

The report notes that investment bankers in the U.S. could see similar drops in their payouts for 2023. In addition to investment banking bonuses falling, traders might also wind up with lower bonuses for the 2023 period.

We wrote back in November 2023 that a survey released by New York-based pay consultancy Johnson Associates found investment bankers (on the advisory side) are expected to see bonuses tumble by 15-25% from a year ago, including both cash and stock-based compensation. Retail and commercial bankers at regional banks could see 10-20% smaller bonuses. And investment bankers in debt underwriting could see their payouts slide by as much as 10%.

"It's another disappointing year, and you overlay that with inflation, people's incomes are down meaningfully," stated Alan Johnson, Managing Director at Johnson Associates, as reported by the Wall Street Journal.

It's the second consecutive year of sliding compensation for Wall Street after record low-interest rates, helicopter money, and juiced-up financial markets sent bonuses to record levels. Global dealmaking has since fallen after peaking at record highs. 

The lower bonuses also stand at odds with the last several years, where we have written non-stop about how Wall Street firms (and even law firms) have had to dangle enticing offers over to retain and attract new talent. 

However, many on the street are predicting a turnaround in dealmaking for the forthcoming year. Carlyle Group Inc.’s David Rubenstein added: “You’ll see a lot more M&A activity and a lot more private equity activity."

The drop in deals “is good for investment banking because you have these financial-sponsor portfolios that have been locked up that need to be liberated," added Morgan Stanley Chief Executive Officer Ted Pick. 

However, as we noted in November, Johnson Associates expects 2024 will be "another challenging year" for Wall Street as the Fed holds interest rates' higher for longer'.