Wall Street bonuses expected to be cut by up to 45% after a record year

Bonuses for Wall Street bankers are expected to fall by as much as 45 percent this year as inflation dries up business after a decade of record highs.

Payouts for investment bankers who guarantee deals are likely to fall 40 to 45 percent this year, while incentive payouts for those who advise on transactions are estimated to fall from 20 to 25 percent, according to data from compensation advisory Johnson Associates.

“People thought this year might be more normal after 2021, but they didn’t expect to see it go very far in the other direction,” Alan Johnson, of Johnson Associates, told The Post. “This is one of the worst two years we’ve had in the last decade.”

While investment bankers have come under pressure from the turmoil in the financial markets, their trading counterparts have benefited from increased volatility and client activity.

However, fixed income traders and salespeople are likely to get pay bumps of 15 to 20 percent, while bonuses for stock traders may rise from 5 to 10 percent, according to the report.

Bonuses for financiers, especially those in investment banking who guarantee deals, are likely to fall by 40 to 45 percent this year, while bonuses for transaction advisors are estimated to fall between 20 and 25 percent.

Bonuses for financiers, especially those in investment banking who guarantee deals, are likely to fall by 40 to 45 percent this year, while bonuses for transaction advisors are estimated to fall between 20 and 25 percent.

After several Wall Street banks posted record gains in 2021, mergers, acquisitions and IPOs dried up in the first half of this year, lowering bonuses.

After several Wall Street banks posted record gains in 2021, mergers, acquisitions and IPOs dried up in the first half of this year, lowering bonuses.

Quarterly GDP growth seen over the past four years, showing the pandemic recession in early 2020 and the current downturn cycle

Quarterly GDP growth seen over the past four years, showing the pandemic recession in early 2020 and the current downturn cycle

The consumer price index hit a four-decade high of 9.1 per cent in June - a staggering level of inflation for an economy that was apparently shrinking.

The consumer price index hit a four-decade high of 9.1 per cent in June – a staggering level of inflation for an economy that was apparently shrinking.

Morgan Stanley bankers also complain that their bonuses are small – having raised between $40,000 and $45,000.

They usually receive payments between $70,000 and $100,000. This year’s bonus is said to be 30 percent of their annual salary of about $140,000.

Bankers attacked mid-term bonuses on the Wall Street Oasis financial blog, The New York Post mentioned.

One banker wrote: “What is this ***??? Why would anyone choose to get such a huge discount.

I just got home 44K. What is the actual f***?

Meanwhile, another added: “This is a *** bonus for what’s supposed to be a big bank.”

Other users on the financial forum have mocked bankers for grumbling about bonuses that come close to the average annual salary of Americans. The average salary across the country is $53,000, according to the US Bureau of Labor Statistics.

Bankers at one of the biggest companies on Wall Street have complained about how small their bonuses are - after raising between $40,000 and $45,000 (file photo)

Bankers at one of the biggest companies on Wall Street have complained about how small their bonuses are – after raising between $40,000 and $45,000 (file photo)

Other than considering bonus cuts, Wall Street bosses are also in a quandary over whether to lay off investment bankers or keep them on staff in hopes of showing signs of recovery from a brutal first half.

“The headcount will decrease as companies scale back after staff increases in 2021 and into 2022,” said Johnson, managing director at Johnson Associates.

With the risks of a recession looming and the Federal Reserve raising rates aggressively to stem inflation, the prospects for arrangement and financing deals have dried up.

Some banks continue to add staff, but momentum has slowed from last year’s hectic pace and some expect cuts to be inevitable. While executives at US banking giants said market activity may rebound again after the first-half slump, it will likely be modest compared to a record transaction year in 2021.

Data from Dealogic in June showed global investment banking net revenue fell to $35.6 billion year-on-year, down nearly 38 percent from $57.4 billion in the same period a year earlier. The data showed that the total net revenue of global investment banking for the year 2021 was $132 billion.

Government stimulus and low interest rates led to a rush of deals as companies reorganized their businesses in the past year, bolstering divisions of banks that advise businesses.

The Russian invasion of Ukraine and a major monetary tightening led to volatility in commerce on Wall Street. While that could help with volumes, it has slowed initial public offerings (IPOs) and deals led by special purpose acquisition companies (SPACs).

“IPOs are scarce, and SPACs are now non-existent,” Stephen Biggar of Argus Research told Reuters in June.

The Fed will raise interest rates quickly in 2022, from near zero to the target range of 2.25 to 2.5 percent, in an effort to tackle rising inflation — but higher borrowing rates are putting a brake on economic growth.

The Fed will raise interest rates quickly in 2022, from near zero to the target range of 2.25 to 2.5 percent, in an effort to tackle rising inflation — but higher borrowing rates are putting a brake on economic growth.

President Joe Biden has denied that the country is in a recession and the White House has been pressing messages that a recession should be officially declared by the National Bureau of Economic Research

President Joe Biden has denied that the country is in a recession and the White House has been pressing messages that a recession should be officially declared by the National Bureau of Economic Research

The economy has been adding jobs at a steady pace even as GDP contracted, which some analysts point to in arguing that the economy is not in a recession

The economy has been adding jobs at a steady pace even as GDP contracted, which some analysts point to in arguing that the economy is not in a recession

Two quarters of the GDP contraction point to a recession trend, but the Biden administration has denied the allegations, saying that a panel of economists should first formally declare that the economy is no longer expanding.

Republican critics accused the administration of going against reality, with House Minority Leader Kevin McCarthy saying in a speech: “It would rather redefine a recession than restore a healthy economy.”

The Commerce Department confirmed in a report in July that US gross domestic product shrank 0.9 percent in the second quarter, after a 1.6 percent decline in the first quarter.

Republican critics accused the administration of going against reality, with House Minority Leader Kevin McCarthy saying in a speech: “It would rather redefine a recession than restore a healthy economy.”

Earlier in July, UK-based Barclays bankers had similar complaints, suggesting the financial sector may be preparing for some tighter bonuses.

Barclays analysts claimed first-year bonuses for this year were 40 percent of salary for the year versus 85 percent in 2021.

The July GDP report from the Bureau of Economic Analysis is a prior estimate and will likely be revised in the coming months.

The report noted weakness across the economy, noting that consumer spending slowed as Americans bought fewer goods.

Business investment has fallen, and inventories have plunged as companies slow to restock shelves, reducing two percentage points of gross domestic product.

High borrowing rates, as a result of the Fed’s series of rate hikes, have hampered home construction, which has shrunk at an annual rate of 14 percent. Government spending has also declined.

Partly offsetting these declines, the report said, increased exports and consumer spending.

Representative Kevin McCarthy (R-Calif.) shared a poster in July saying that it showed Biden blaming everything other than his policies on the deteriorating economy, including the coronavirus, Putin and supply chain issues.

Representative Kevin McCarthy (R-Calif.) shared a poster in July saying that it showed Biden blaming everything other than his policies on the deteriorating economy, including the coronavirus, Putin and supply chain issues.

For months, the US economy has been sending mixed signals that have baffled economists and policy makers.

Inflation continued to rise even as growth slowed, evoking grim memories of the “stagflation” of the 1970s.

The job market is strong, with far more job opportunities across the country than people looking for work. It’s a situation that should drive strong wage growth, but wages have failed to keep pace with inflation.

And consumers, whose spending accounts for nearly 70 percent of economic output, are still spending aggressively, albeit at a slower pace.

What is GDP? How does the government measure the economy?

Gross Domestic Product, or Gross Domestic Product, is a measure of the total market value of all goods and services produced within the United States.

The Bureau of Economic Analysis uses real GDP, adjusted for inflation, for its quarterly report on economic growth.

The agency’s formula for GDP brings together four components: consumer spending, business investment, government spending, and net exports (exports minus imports) to arrive at the total.

The GDP equation does not include voluntary services or illegal activities.

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