Traders Set to Win Spoils in Europe’s Uneven Bank Bonus Days

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European banks are walking a narrower tightrope than usual this bonus season as they seek to pay enough to keep top traders and investment bankers motivated while not attracting the ire of regulators.

Whether under the gaze of the European Central Bank or the Swiss watchdog, banks are generally emphasizing restraint on overall bonus pools -- the amount of cash set aside to cover one-off payments. At the same time, they’re signaling those at the forefront of last year’s huge gains in fixed-income and equities trading and investment bank advisory will be rewarded.

It’s a visible trend throughout the continent. Credit Suisse Group AG -- which contended with large legal hits and writedowns last year -- signaled investment bankers will see raises even as the overall bonus pool shrinks 7%. Deutsche Bank AG has made no secret of its plans to pay for performance and will boost bonuses for its traders by more than 10%, though its was forced to scale back plans for bigger increases by the ECB, Bloomberg reported.

Traders Set to Win Spoils in Europe’s Uneven Bank Bonus Days

Similar restraint has also been on display in the U.S., where strong gains in trading were offset by Wall Street banks setting aside tens of billions of dollars to cover the cost of loans going sour. There -- as is likely to be the case in Europe -- those banker rewards that did come were lower than the increases in revenue: Goldman Sachs Group Inc.’s workforce generated 15% more revenue per employee in 2020, but as the year wound down, the firm had spent an average of just 2% more on each person.

At Deutsche Bank, fixed-income trading revenue soared 28% last year, while Credit Suisse’s equity-capital markets bankers oversaw a tripling of revenue in the fourth quarter as demand for special purpose acquisition companies soared. Overall, trading and capital markets revenue jumped for many, even as the global economy slumped and profit at 20 major EU lenders tracked by Bloomberg Intelligence fell to the lowest in at least two decades.

The trend to reward traders while holding back on pay for other parts of the bank is also apparent at other European lenders. UBS Group AG is planning to increase investment banking bonuses by as much as 20%, while some private bank staff face cuts of up to 15%. At Barclays Plc, top traders saw an average 16% gain in bonus pay compared to the same cohort of so-called material risk takers in 2019, according to a Bloomberg analysis of disclosures in the bank’s annual report. The group’s overall incentive pay rose only 6%.

One reason banks are treading carefully on bonuses raises is fear of reputational repercurssions in an industry scarred from the experience of being blamed for precipitating the 2008 crisis. This time around, banks have been keen to highlight they’re part of the solution by keeping credit flowing to paralyzed companies.

European regulators have also been public in their demands to keep a lid on bonuses. Andrea Enria, who leads the European Central Bank’s bank oversight arm, has called on banks to exercise “extreme moderation” on variable compensation to avoid eating into capital cushions, which have rebounded to record highs. The ECB and other regulators also argue that banks have only withstood the pandemic so well thus far because of massive support from governments and central banks.

Traders Set to Win Spoils in Europe’s Uneven Bank Bonus Days

Deutsche Bank has learned the hard way. The lender cut back its initial plan to boost bonuses by roughly one-third after the ECB objected, Bloomberg has reported. UBS is, so far, an exception and the one that may be getting closest to paying for revenue generated with its plans to raise investment banker payouts. Trading revenue at Switzerland’s largest bank climbed 33%.

This time around sacrifices are also being made at the top. Several bank CEOs at the onset of the pandemic agreed to cut their pay, while Commerzbank decided to scrap bonuses for its top leadership altogether after posting the deepest loss in a decade.

©2021 Bloomberg L.P.

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