Investment Banker Bonuses Expected to Decline in 2022, Raising Concerns for Capital Markets
U.S. investment bankers who provide advisory services for companies on deals may see a decrease of 20 to 25 percent in their bonuses this year, as markets remain subdued, according to projections from compensation consultant Johnson Associates. This gloomy outlook also extends to investment bankers in debt and equity underwriting, where bonus pools could either remain stagnant or drop by as much as 10 percent. The consultant’s report, released on Monday, highlights the challenges faced by the industry amid ongoing uncertainty.
While a surge in initial public offerings (IPOs) has been viewed as a positive indicator of increasing activity in capital markets, top bankers assert that it is premature to declare a sustained recovery. Concerns such as interest rates, inflation, and geopolitical tensions present risks to the economy, warranting caution.
Although big banks have experienced progress in their underwriting divisions, a revival for their advisory arms is unlikely until 2024. This expectation will limit incentive compensation, impacting overall bonuses for investment bankers. Johnson Associates projects a decline of 5 to 10 percent in bonuses for stock traders, while bond traders may witness their payouts either increase or decrease by 5 percent.
It is important to note that Wall Street bonuses can exhibit significant variation. The average payout for securities industry employees in New York decreased by 26 percent in 2022, reaching $176,700, compared to the record $240,400 in 2021, as stated in a report from New York State Comptroller Thomas DiNapoli in March.
The projections from Johnson Associates also shed light on differing outcomes for large and small banks. Bonuses for retail and commercial bankers at major global institutions are anticipated to rise by 10 to 20 percent. Conversely, incentive compensation at regional banks is projected to decline by 10 to 20 percent.
In related news, global mergers & acquisitions took a plunge in the second quarter. However, dealmakers remain cautiously optimistic and perceive early signs of recovery, indicating a potential revival in this sector.
As the financial landscape faces a challenging environment marked by uncertainties, the declining investment banker bonuses raise concerns for the capital markets. The industry will need to navigate a complex landscape defined by various economic factors. Balancing caution and optimism, market participants are hoping for a sustained recovery and growth in the foreseeable future.
