There was a time when bonuses and myriad benefits in the banking industry were the envy of the rest of Britain’s financial sector. But times have changed and the emphasis is more on cost-cutting with revenues taking a dive. Bankers in the UK will be envious of their colleagues in the US.
Though payouts are shrinking everywhere, they are getting smaller faster in the UK compared with banks across the Atlantic, according to the latest forecasts.
Managing director of Johnson Associates, which advises investment banks on their pay, Alan Johnson said: “The investment banking business in the US did better (in 2019), and fundamentally the environment in Europe remains very difficult, which will be reflected in this year’s bonuses.”
Banks across London’s financial district (known as the City) are preparing to cut bonuses for 2019, according to head-hunters, bankers and pay consultants. A stagnant job market and slumping revenues in the UK are contributing to smaller payments.
Across traditional investment banking divisions in the City, bonuses will slip by an average of 4.1 per cent for 2019, according to figures from Options Group, the executive search firm. This compares with a 1.8 per cent in the US.
The biggest drop will be within banks’ equity capital markets divisions, according to the data, where bonuses are expected to shrink by 10 per cent.
A managing director working in mergers and acquisitions in the UK can expect average pay of between $550,000 and $900,000, with their bonus comprising around 50 per cent of this, the data show. Some industry observers expect the gap between pay in the US and Europe to widen.
Chief executive of Vici Advisory, the executive search firm, Stephane Rambosson said: “Senior investment bankers are telling me that they will pay their bankers in Europe up to 30 per cent less than those on Wall Street because of the increased focus on the US. Across investment banks in the City, the bonus pool could be down by up to 20 per cent.”
Canada’s RBC Capital Markets has slashed bonuses by 18 per cent – 20 per cent at its London investment bank this year, according to people with knowledge of the payments.
Deutsche Bank is considering reduction in a similar range, while Credit Suisse’s head of investor relations, Adam Gishen, told reporters during a recent investor day that its investment banking bonus pool had shrunk “significantly” in reaction to the unit posting a loss for 2019.
European investment banking revenues fell 15 per cent in 2019 to $16.4bn, making it the worst-performing region globally, according to the data provider Dealogic. In comparison, fees generated in North America fell by 4 per cent to 42.7bn.
Co-chief executive of Numis, the UK-focused broker, Ross Mitchinson said: “There was a lot of uncertainty because of Brexit, and particularly ahead of the December general election, when there was a risk of Jeremy Corbyn coming to power or a lack of clear majority. UK listed companies shied away from deals at the last minute, private equity firms declined to commit capital and international firms put transactions on hold.”
Even large investment banks, which took record market share from their European rivals in 2019, are guiding their senior bankers on bonus cuts of between 10 per cent and 15 per cent in London, according to people with knowledge of the talks.
“No one bank wants to be the outlier,” said one head-hunter who works with large investment banks. “They are rewarding high performers and we are expecting more zeros than ever.”
Another head-hunter said: “With so little recruitment currently, we expect banks to be cautious and shrink the bonus pool, protecting the high performers and betting that they can underpay others and still not see an exodus.” UK fund managers have been warned that their next bonus payouts could be as much as 10 per cent lower, as billions of pounds of outflows and a continued squeeze on profits beset the industry.
The forecast from PwC, the accounting firm, is yet more bad news for City investment professionals, who spent most of last year trying to recover from 2018 – one of the worst on record for the sector.
Leader of the asset management reward practice at PwC, Tim Wright, said that while market conditions improved in 2019, it will probably not be enough to boost individual bonuses. (The writer is our foreign correspondent based in the UK. He can be reached at andyjalil@aol.com)
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