Wall Street Bonus Prospects Brighten After Trading Bounce

(Bloomberg) -- For Wall Street's bond traders and investment bankers, prospects for year-end bonuses are improving.

Incentive pay for fixed-income sales and trading personnel may fall as much as 10 percent and may even hold steady compared with last year, compensation consultant Johnson Associates Inc. said in a report Monday. That's better than the 10 percent to 15 percent decline projected in August and a drop of as much as 20 percent expected in May.

The outlook for bankers who sell debt or equity on behalf of corporations has also improved, with year-end bonuses forecast to fall 10 percent to 20 percent, compared with the 15 percent to 25 percent decline projected in August. Bankers offering merger advice will see their compensation fall 5 percent to 10 percent, Johnson estimated. That's improved from a projected decline of as much as 15 percent in August.

The better outlook comes at the right time for Wall Street workers as managers are in the process of making initial compensation decisions. While staff is typically told about bonuses in December or January, discussions begin months before. The biggest global investment banks reported a second straight quarter of fixed-income trading gains after the first three months of 2016 were the worst start of a year since the financial crisis.

“That business may have finally bottomed out, which has been a long time coming,” Alan Johnson, the founder of Johnson Associates, said in an interview. Still, nobody's expecting a bigger bonus just yet. “They are tired, they are ground down. The mood is subdued on Wall Street.”

Private Equity

Overall, compensation figures are projected to fall 5 percent to 10 percent, according to Johnson. The figures include both cash bonuses and equity awards for Wall Street, private bankers and asset managers, including those at private equity and hedge funds.

Wall Street workers are generally paid between 20 percent to 60 percent or more of their bonus in deferred equity awards, with senior executives getting more stock, Johnson said. That compares with a peak of about 30 percent to 40 percent before the crisis, he said.

The lone bright spot for financial services is in retail and commercial banking, where bonuses are projected in a range of unchanged to up 5 percent, Johnson said. That's the same as the company's August projection.

To contact the reporter on this story: Dakin Campbell in New York at dcampbell27@bloomberg.net.

To contact the editors responsible for this story: Peter Eichenbaum at peichenbaum@bloomberg.net, Steve Dickson, David Scheer