Bankers Across Europe Brace for Smaller Bonus Pots This Year

(Bloomberg) --

Bonus season promises to be a miserable one at European investment banks.

Shrinking revenue will likely translate into double-digit percentage declines for many trading and investment banking teams at lenders including HSBC Holdings Plc, Deutsche Bank AG and Societe Generale SA, according to recruiters and executives.

The tough landscape for Europe’s financial industry -- with restructuring at several firms, negative rates, hedge fund closures and costly technology upgrades -- has left many braced for steeper bonus declines than a year ago. While bonus pools won’t be finalized until after the end of the year, there are signs that cash equities will be hardest hit.

Executives at global banks have dropped plenty of hints that bonuses will fall. “Don’t get distracted, and get us a good fourth quarter,” Samir Assaf, HSBC’s top investment banker, quipped on a staff call whose remarks were recounted to Bloomberg News.

“We need every dollar in this fourth quarter to get a good bonus round, if only for that,” he said. Assaf is stepping back from the investment bank, people familiar with the matter have said. In its third-quarter results, HSBC said it had cut performance-related pay by $200 million.

Cash Equities

A smaller British broker, Numis Corp., offered an early glimpse of how bonus season is shaping up. “It’s been a pretty tough year for the industry and our bonus pool,” said Ross Mitchinson, co-chief executive officer of the firm, which reported a decline in investment banking revenue this week.

“I suspect it has been similarly difficult for most industry players, given the difficult market backdrop and macro-political uncertainty,” he said.

Some of the bankers faring badly this year are usually among the biggest sales generators. Global revenue from investment banking is poised to decline again this year, according to data from Coalition Development Ltd.

But it’s cash equities desks that will see the largest bonus drops, with falls of 15% in Europe, the Middle East and Africa predicted by recruiting firm Options Group, while equity derivatives are set for a 10% decline. Prime finance units, which serve the under-pressure hedge fund industry, are set for 5% bonus cuts, in line with their U.S. peers. Commodities teams, meanwhile, should escape the general slump in bonuses across FICC, the firm’s analysis found.

Rewards will be also scarce at Credit Suisse Group AG, where several quarters of lackluster deal-making and weaker leveraged finance -- one of the Swiss bank’s traditional strengths -- may reduce pay-outs at its investment banking and capital markets division, Bloomberg News reported.

“There are going to be a lot of zeros,” said Stephane Rambosson, chief executive at executive search firm Vici Advisory. “Most people will be down and flat will be the new up.”

Bankers Across Europe Brace for Smaller Bonus Pots This Year

There will be some exceptions. IT and cyber security budgets are unlikely to be cut while expertise in these sectors is in high demand, recruiters said.

Barclays Plc had the best third quarter on record for equity and debt capital markets and merger advisory, according to Chief Executive Officer Jes Staley, and the firm’s rates and securitized products units were strong. Well-performing investment bankers across the industry will expect to be rewarded accordingly.

Pay Fairly

These bright spots pale in comparison to the sweeping job cuts and cost-saving drives at many of the region’s largest banks this year. SocGen is planning to cut 1,600 posts and Barclays has axed 3,000 jobs, HSBC expects to make wide-ranging reductions and Deutsche Bank AG aims for even more.

“There were massive redundancies,” said Ben Harris, senior manager at London-based recruiter Morgan McKinley. “Bonuses will be cut; people will be pretty happy to keep their jobs.”

Staley said after recent earnings that “we want to pay fairly, but everyone understands we have an obligation to deliver acceptable level of profitability.”

Things aren’t looking much better for rivals across the Atlantic. Bonuses are poised to drop by double digits in equity trading and debt and equity underwriting, a recent report from a compensation consultant Johnson Associates Inc. said.

©2019 Bloomberg L.P.

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