The biggest Wall Street banks are cutting bonuses by up to 30%

(Bloomberg) — Across Wall Street, expectations for this year’s banker bonuses are quickly coming to fruition, as a slowdown in bargaining ends the industry’s war for talent and firms regain the upper hand in setting pay.

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JPMorgan Chase & Co., Bank of America Corp. and Citigroup Inc. plans to cut bonus funds for investment bankers by up to 30%, according to people familiar with the internal discussions. Some firms plan not to reward low performers at all. The proposals are still being discussed and could change in the coming weeks, the people said.

This is the first glimpse of the industry’s year-end bonuses after corporate deals and sales of new securities decline amid the market turmoil of 2022. Investment banking revenue at the five largest US banks fell 47% in the first nine months — a drop of $18.8 billion. At Goldman Sachs Group Inc., even the top-earning traders are not immune from bonus discounts.

For legions of bankers and traders, their annual bonuses can run into the millions of dollars and make up most of their annual salaries. Wall Streeters spend months banking their bonuses to pay for tony private schools, luxury vacation homes, and private club memberships.

Less than a year ago, employers were locked in a fierce bidding war for talent, with some firms laying off almost entirely as they struggled to retain adequate staff. The layoffs started again a few months ago, and now, with the growing number of newly unemployed Wall Streeters, banks have more room to keep a cap on their salaries. Many workers have no other suitable options.

“Star performers will be looked at,” said Anthony Keizner, managing partner of executive search firm Odyssey Search Partners. “But a more common strategy would be to cut bonuses more broadly, as opposed to highly compensating some bankers and letting others go.”

Representatives for JPMorgan, Citigroup and Bank of America declined to comment.

It’s not all doom and gloom. Rates and commodities traders helped boost fixed-income trading revenue to $53.7 billion on Wall Street, the second best on record.

At Bank of America and Citigroup, that means executives could keep bonus pools for traders at last year’s levels, some of the people said. And executives at those banks are discussing higher rates, and rewarding currency and commodity traders with higher pay packages.

Gorman’s Warning

Goldman is poised to smash rivals by slashing its bonus pool for traders by a low double-digit percentage, people familiar with the matter said earlier Friday. The firm is under particular pressure to limit payouts after spending more than projected to expand into consumer banking. Leaders called off the campaign in October.

Four months ago, Goldman also stood out when it hinted at plans to recover from the periodic cull of underperformers. But since then, Morgan Stanley, Citigroup and Barclays Plc have followed suit.

In recent months, the job cuts have confirmed their guarantees, with Bank of America saying there are no plans for layoffs “at this stage.” But the practice of culling low performers is expected to resume next year, the people said.

“Some people are going to be let go,” Morgan Stanley Chief Executive James Gorman said at Reuters’ NEXT conference on Thursday. “We are making some modest cuts around the world. In most businesses, you do this after years of development.”


On Wall Street, bonuses and other incentives are highly volatile because the industry goes through booms and busts. In the last months of the year, banks evaluate the performance of employees and determine bonus pools that they can share with the most generous portions for people who are raining.

The outlook for banker bonus pools has been dimming for months. Compensation consultant Johnson Associates Inc. estimated last month that typical deal advisers could see their bonuses cut by as much as 20%, while their underwriting colleagues’ bonuses could drop by as much as 45%.

“It’s going to be a tougher compensation season,” Jefferies CEO Rich Handler and President Brian Friedman warned their employees this week.

This year, banks including Citigroup, Bank of America and Barclays are considering giving no bonuses at all to dozens of their lowest-performing employees — known as “resets” or “goose eggs,” “doughnuts” or “bagels.” The number of bankers at Goldman who did not receive anything may exceed 100.

A Barclays spokesman declined to comment.

Bonus snubs are often a precursor to layoffs, but also a kind of bravado: If a company wants to downsize, it can throw a bunch of them aside and see if enough people get the message to expedite the layoffs. Or, with layoffs mounting at other firms, some managers may bet that buyers will keep coming to their desks on the cheap.

“Where else will these bankers go?” Keizner said. “Banks want their teams to stay together because they don’t want to find themselves understaffed and confused again when things turn around.”

Limitation of Employers

Indeed, some smaller firms may resist the temptation to poach talent on Wall Street with a now-unclear outlook. Evercore Inc., for example, limits replacement hiring for departing bankers.

The low fees paid to bankers may not garner much sympathy outside of finance.

The securities industry’s total compensation pool in New York will drop 22% from last year, when average pay was $257,500, according to state Comptroller Thomas DiNapoli.

That would still be four times what a typical private sector worker earns in the city.

–With assistance from Sridhar Natarajan, Harry Wilson, Gillian Tan and Dan Reichl.

(Updates to add chart showing investment banking returns.)

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