Although forecasts still indicate a significant increase of up to 35% this year, experts have cautioned that stock market volatility and a potential slowdown in the US economy may have an impact on bonuses for Wall Street’s investment bankers.
Recent forecasts indicate that employees in various financial institutions, such as hedge funds, asset managers, and investment banks, can expect an increase in their payouts, marking the first rise in two years. Similar to a quantitative analyst, it observes a recovery in business confidence and market activity, as companies become more inclined to take risks due to decreasing inflation, resulting in lower borrowing costs.
Investment bankers in debt underwriting are projected to experience a significant increase in bonuses, with a predicted surge of 25% to 35%. This rise is attributed to the growing number of companies and governments issuing investment-grade bonds during the first half of the year.
The total Wall Street bonus pool in 2023 was $33.8 billion, which is equivalent to £26.5 billion, according to data that the New York state comptroller made public in March. This figure represents an average payout of $176,500.
Equity underwriters, who assist in the issuance of new firm shares, are closely behind. Johnson Associates, a compensation consultancy based in New York, forecasts a twenty percent to thirty percent increase in bonuses following an increase in the number of publicly traded companies.
An increase in the requirements for hedge funds, which have been successful in persuading investors to commit more cash, might lead to a boost in incentives for their own employees of between five and fifteen percent. In the meantime, wealth and asset managers are expected to get bonuses that are between five and ten percent higher than 2023.
Although the data provided by the consultancy reflects the bonus expectations of bankers in the United States, it is quite likely that it will have an effect on the payouts made by their counterparts in other countries, such as the European outposts of JP Morgan and Goldman Sachs.
The investment bankers in London are expected to receive larger bonuses this fiscal year, according to separate research published by Dartmouth Partners, a recruiter that works with banks, consulting firms, and startups. This prediction was made in light of the fact that market activity has increased.
The decision to eliminate the banker bonus cap, which EU authorities implemented in the wake of the financial crisis in an effort to reduce the amount of risk taken, is also probably advantageous to bankers in the United Kingdom. The previous Conservative governments of the United Kingdom decided to remove those restrictions, and regulators finally approved the decision in November. This decision opens the door to big bonuses that were previously eliminated to the extent that they were equal to two times the pay of a banker.
Although it is highly improbable that the shift will result in an increase in the total pay pools, it may lead to increased payouts for certain individuals.
This week, Barclays made history by being the first bank with its headquarters in the United Kingdom to legally lift the cap. The company informed its employees that they would now be able to receive bonuses that are worth up to ten times their income. In the beginning of this year, major US lenders made similar announcements to their employees in the United Kingdom. Goldman Sachs, for example, provided hundreds of its highest-earning employees with the opportunity to receive bonuses that were 25 times their pay.
Nevertheless, Johnson Associates issued a warning that might have an effect on payouts in the event that market and economic conditions deteriorate during the final six months of the year. According to the report, “recent market volatility and the possibility of the economy becoming more sluggish are leading to questions regarding the momentum going into the second half and beyond.”
The comments come after a week that was extremely volatile for financial markets throughout the world. The fears of a big economic slowdown in the United States and a decline in the technology sector, which followed a string of profits that were less than impressive, spurred a significant sell-off. In addition to the decision of the Federal Reserve to refrain from lowering interest rates, which prompted critics to criticise the central bank for waiting too long to take action, the panic was triggered by an unexpectedly dismal report on employment in the United States that was released the previous week.
However, the upheaval in the stock market began on Thursday night, with Wall Street enjoying its best day of trading in nearly two years. This occurred after data revealed a decrease in the number of Americans who filed new claims for unemployment benefits the previous week.
It is possible that whiplash trading will continue during the next few months. Investors are waiting with bated breath for the results of the presidential election that will take place in November. The vote will put former President Donald Trump against Kamala Harris, who is currently serving as the vice president of the Democratic Party.
Johnson Associates stated that recent market volatility and the possibility of the economy becoming more sluggish are leading to concerns regarding the momentum that will be carried into the second half of the year.
On the other hand, it did mention that banks had not yet taken any judgements regarding payouts due to the ongoing uncertainty. “A change in the planning process has not yet taken place.”