Bonfire of the bonuses: is the party over for bankers?
After a tough year, investment banks are calling employees’ bluff and slashing bonuses and pay
DEUTSCHE BANK has become the latest financial institution to announce a reduction in bonuses, as what one analyst calls an “existential crisis” overtakes the finance industry.
Bloomberg reports that payouts at Deutsche are to be capped at €200,000 per employee, a maximum that also applies to the bank’s investment arm. The total bonus pot has fallen from €5.91bn in 2010 to €5.05bn in 2011. The bank, which saw profits fall 76 per cent between October and December because of Europe’s sovereign-debt crisis, has also cut pay at its corporate and investment divisions by 15 per cent.
Shrinking bonuses are becoming something of a theme in the banking world. Morgan Stanley, Credit Suisse and Citigroup have all reduced investment bankers’ pay for last year because of reduced profits.
On the day RBS boss Stephen Hester went on the Today programme to explain his decision to waive his £963,000 shares bonus, Reuters reports that Barclays investment bank is likely to cut bonuses by 30 per cent.
Most dramatic of all, reports The Wall Street Journal, Switzerland’s UBS announced yesterday that the 2011 bonus pot at its investment arm had been cut by a massive 60 per cent after fourth quarter profits fell 76 per cent.
Recruiters have identified a trend – and it’s bad news for bankers. John Purcell, of London-based recruiter Purcell & Co, tells Bloomberg: “The generic ‘war for talent’ is over. Of course, top performers will always be in demand, but the rising tide that lifted all boats has well and truly gone out.
“The recent, current and forthcoming redundancies have fundamentally altered the economics of remuneration in banking.”
The situation is serious. Businessweek asked in a feature yesterday, “Is the party over for MBAs?” – before suggesting the days when such graduates could walk straight into a Wall Street job with a six-figure salary and bonus to match are well and truly over.
Meanwhile, a feature in this week’s New York magazine describes an “existential crisis” in Wall Street, where institutions that have long been happy to pay ever higher remuneration to hold on to their top talent are now calling their star traders’ bluff. A glut of hedge funds, industry-wide belt-tightening and new regulations restricting borrowing are all blamed.
A hedge-fund executive tells the magazine: “If you’re a smart PhD from MIT, you’d never go to Wall Street now: you’d go to Silicon Valley. There’s at least a prospect for a huge gain. You’d have the potential to be the next Mark Zuckerberg. It looks like he has a lot more fun.”