[LONDON] Wall Street's biggest dealmakers will be showered with big bonuses this month but many other bankers face a lean year as executives seek to retain top talent while at the same time try to keep a lid on costs.
A record year for mergers and acquisitions was one of the few bright spots for major banks last year as volatile markets, concerns about China and falling oil prices hurt trading businesses.
But banks are not uniformly rewarding their dealmakers amid a need to shave costs due to falling trading revenues, pedestrian growth elsewhere and regulatory pressure to curb compensation.
Those concerns may be thrown to the wind when it comes to top rainmakers at Wall Street firms such as JPMorgan Chase & Co and Morgan Stanley. They are anxious to stem defections to boutique banks such as Centerview Partners and Lazard Ltd, which are not subject to the same regulatory oversight. Investors and regulators have been more closely scrutinizing Wall Street pay following the 2008 financial crisis. "In certain groups you are going to see some impressive numbers this year reflecting the robust M&A market and in an attempt to keep top bankers happy and not moving," said Noah Schwarz, an executive recruiter at Korn Ferry. "There have been so many situations of musical chairs in 2015 - more trades than I have seen in a long time." Overall, though, bonus increases for dealmakers range from flat to low single digits, sources said.
Morgan Stanley saw banker bonuses largely flat to up 5 per cent over last year, according to people familiar with the matter.
Within Morgan Stanley's institutional securities group, which includes investment banking and trading, the bank set aside 17 per cent less money for compensation for 2015 compared to the year prior.
At Citigroup Inc, banker pay remained flat over last year. Revenue from advising on deals rose 16 per cent in 2015, although overall investment banking revenue, including equity and debt underwriting, was down 3 per cent.
Representatives for the banks declined to comment.
Deal volume globally rose 42.2 per cent to a record US$4.7 trillion, according to Thomson Reuters data, spurred by mega mergers like Anheuser-Busch Inbev SA's US$106 billion acquisition of SABMiller Plc and oil major Royal Dutch Shell Plc's US$70 billion purchase of BG Group Plc.
Merger fees worldwide, in turn, rose 7.7 per cent to US$26 billion last year.
Bonuses at boutique shops such as Guggenheim Partners are expected to rise 10 to 20 per cent.
Still, even for top rainmakers at big banks, bonuses are not expected to reach pre-crisis levels such as when Merrill Lynch's top dealmaker Andrea Orcel took home US$34 million. "What we're seeing is the return of the strategic M&A banker," said Stéphane Rambosson, managing partner of executive search firm DHR International. "It's not quite the rainmaker as in the past, but M&A is back with certain firms at the full front of their strategy." Banker bonuses in the US and Europe also differ.
Under an European Union cap, bonuses cannot exceed 100 per cent of bankers' fixed salary, or twice that amount with shareholder approval. But banks have topped up basic pay by awarding allowances to senior staff and also increased fixed salaries as a result in some cases.
M&A bankers overall fared much better than traders, who are seeing their bonuses squeezed amid a difficult year for trading desks across Wall Street. "Compensation has come down across all the trading businesses and it wouldn't surprise you that some of that - a lot of that - has been in fixed income," JPMorgan CFO Marianne Lake said last Thursday during the firm's earnings call.