Bonus hike of 30-50% for investment bankers likely amid record M&A activity in Singapore

INVESTMENT bankers are lining up to collect their meatiest year-end bonuses in a while as dealmaking activity in Singapore soared to a record high last year, with the trend expected to continue into 2022.

Erman Tan, former president of the Singapore Human Resources Institute, guided for a 30 to 50 per cent year-on-year bonus bump on higher investment banking fees.

"The banks are not just paying their bankers to reward them, but to keep them...to retain talent," he told The Business Times (BT).

As at May 2021, the average bonus payout for investment bankers in Singapore ranged from S$20,000 to S$95,000, according to compensation data firm Payscale.

Meyer Consulting Group director Angela Kuek said bankers are generally optimistic that bonuses would be more than last year, with some hopeful for a significant increase.

"The jury is still out on this but to put a number, bankers are expecting at least 25 per cent more. My gauge is all bulge brackets will see higher payouts," she told BT.

This includes the likes of Morgan Stanley, Goldman Sachs, JPMorgan and Citi.

These banks would be paying a higher bonus due to the deal sizes and service diversification in the past year, added Lim Chai Leng, senior director at Randstad Singapore.

In Asia, Morgan Stanley and Goldman investment bankers had reportedly received the biggest bonus bumps among peers for 2020.

The total compensation for Morgan Stanley's investment bankers rose by about 20 per cent, and 15 per cent at Goldman, as reported by Bloomberg last January.

Overall, Lim expects employees in Singapore's investment banking space to see a 6 to 12-month bonus payout for 2021.

Preliminary numbers from Refinitiv showed investment banking activities in the Republic raised about US$1 billion in fees in 2021, representing a 34.4 per cent rise from the previous year.

The growth in fees was largely buoyed by a 91.1 per cent jump in advisory fees for completed mergers and acquisitions (M&As), which amounted to US$349.2 million.

M&A activity in the Republic saw a record period of deals worth US$175.1 billion in total, up 70.4 per cent from 2020, mainly due to the US$31.1 billion combination of Grab and Altimeter Growth Corp.

Based on the league tables, Lim said the US banks are expected to give a higher bonus payout.

Morgan Stanley led in the M&A league table rankings for any Singapore involvement in 2021, accounting for 32 per cent of market share and US$56 billion in related deal value, Refinitiv data showed.

"The recovery of global financing activities after the pandemic first hit in 2020 means that investment banks are expected to reward a bigger bonus year to mark the rapid growth in investment banking activities across all sectors in Asia," said Lim.

Kuek added that higher bonuses will spill over to related M&A entities such as professional services firms, legal firms, financial consultants and insurers.

M&A boom aside, debt capital market (DCM) underwriting fees surged 87.6 per cent from a year ago to hit US$182.6 million as primary bond offerings from Singapore-domiciled issuers witnessed a record period to raise US$45 billion so far this year, according to Refinitiv.

DBS topped the DCM league table in 2021, accounting for 16 per cent of market share.

Private bankers are also in line for fatter bonuses amid the growing popularity of special purpose acquisition companies (SPACs).

Singapore saw a total of 7 de-SPAC transactions totalling a combined value of US$42.8 billion in 2021, up from just 1 deal in 2020.

"Private bankers are likely to benefit from the uptick of SPAC deals as high-net-worth clients tend to take a higher risk-return approach towards speculative investments," said Lim.

She added that the SPAC valuation will grow over time once the M&As of target companies are completed to bring them public - a much faster process than traditional IPOs.

Private banking clients will also consider alternative financing options to disburse and grow their wealth, such as investments through private equity mandates.

"In either case, private bankers are able to earn more revenue from the client's alternative investments, which would relay to a higher bonus for them," said Lim.

Entering 2022, most dealmakers will be targeting to match or exceed their 2021 numbers.

Amid the ongoing Covid-19 pandemic, companies will continue to face geopolitical tensions and tighter government regulations.

China looks unlikely to remain the powerhouse of international, cross-border deals, which may serve to stimulate activity in other places such as Japan, India and South-east Asia, said Massimo Borghello, Asia-Pacific head of human capital M&A consulting at Willis Towers Watson.

"This trend is already evident in our data, which reveals cross-border M&A activity during 2021 has remained at a steady level despite depressed deal activity from China," he added.

Still, looming rate hikes could hurt deal performance this year and consequently, bonus payouts.

"Singapore's financial services sector has been doing well. This (higher bonus) trend will continue... it will be another positive year for bankers if we continue to see a lot of liquidity. But it's hard to say... there's a balancing act between managing inflation and having enough liquidity in the market," said Tan.