Traders’ Pay Outlook Brightens, If They Survived Latest Job Cuts

(Bloomberg) -- The best trading quarter in years didn’t slow the steady march of job cuts at the world’s biggest banks. But it may mean a pay boost for those still around.

Bonuses for both equity and fixed-income traders could jump as much as 20% this year, according to compensation consultant Alan Johnson, the managing director of Johnson Associates Inc.

“This is their heyday” after several years of virtually no change in compensation, Johnson said Wednesday in an interview. “Sales and trading now is mainly a customer business, so you’re benefiting from the flows.”

Wall Street trading desks posted their best quarter in eight years in the first three months of 2020 on surging demand from customers responding to the most volatile market on record. That helped the industry’s largest firms remain profitable even as the coronavirus pandemic forced them to set aside more for bad loans in three months than they did in all of last year.

But not everyone will be sharing in the bounty. The world’s biggest banks cut trading and investment-banking jobs by 5% in the first quarter, the most in six years, according to Coalition Development Ltd.

“The reliance on big headcount has gone down,” particularly in equities, said Amrit Shahani, research director at Coalition in London. “That is a theme across banks.”

The reduction in front-office revenue producers came even as investment-bank revenue surged 12% to a five-year high, Coalition said in a report Wednesday. Stock-trading divisions reduced headcount 10%, particularly in institutional cash equities, while bond-trading divisions shrank 6%, letting go of employees in Group-of-10 rates and commodities.

New York

And some think the revenue gains won’t translate into higher pay because fallout from the pandemic has been too severe. New York’s bankers and traders are likely to see bonus payments “fall sharply” this year as the economic slump crimps earnings in the finance industry, the state’s comptroller said in March.

The decline in staffing contrasts with rising revenue, according to data from the 12 largest global investment banks tracked by Coalition. In fixed income, currencies and commodities, revenue jumped 20%, driven by macro products. Investment-banking revenue increased 7%, helped by equity and debt capital markets.

While some traders are looking forward to a pay windfall at the end of the year, the outlook for the rest of the industry isn’t so rosy. Bonuses for merger advisers could tumble 25% or more, and payouts for underwriting work could drop 15%, according to Johnson.

Bonuses could fall 30% in retail and commercial banking as a surge in provisions for losses outweighs loan origination and deposit growth, he said, adding that the pay forecasts might be too optimistic depending on how the easing of lockdown restrictions plays out.

“If this opening up turns out to be a real problem, and then we have further shutdowns,” Johnson said, “then things could get a lot worse.”

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