Wall Street is a land of contrasts. In any case, for the payment of bonuses in 2014, everyone will be placed in a different boat, according to a study by Johnson Associates published Monday, 10 November. If the overall level of these bonuses will be paid early next year, and should not alter much relative to 2013, situations can vary greatly from one job to another.
Professional mergers, acquisitions and “private equity” dealers, that is to say, those investing in unlisted companies, will undoubtedly emerge as winners. Johnson Associates estimates that the bonus in these trades should be increased by 10-15%. It is logical given that activity in mergers and acquisitions in 2014 regained its pre-crisis levels. This segment grew by 59% compared to 2013 for a total amount of transactions of 2,700 billion over the first 9 months of the year.
Other winners are most likely to be professional asset managers or IPOs specialists; they should see their bonuses rise by 5% to 15%.
However, for bankers working with the fixed income (bonds), the so-called “masters of the universe”, or traders in equity markets, the outlook is less bright. According to the study, their premiums will decrease by 10% on average. This trend illustrates the changes taking place on Wall Street.
On the one hand the new regulation implemented from 2010 to correct the excesses of the financial crisis is causing banks to reduce their exposure to risk. They are now more likely to turn to trades such as wealth management or mergers and acquisitions, i.e., trades where banks do not put their own money at stake. “We made money by trading on behalf of clients, it is a more stable business,” said Alan Johnson, director of Johnson Associates.
On the other hand, although trading activity has awakened in recent weeks, the low volatility of the markets, especially this summer, weighed on trading volumes. Bonuses are proportional to the slowdown. And the future is not necessarily rosy: “I do not think people are particularly optimistic,” said Mr. Johnson, “it is one thing to suffer a 10% drop, but it was already 10% the year before. Trading may no longer be the engine for the banks that have benefited over the past 20 years,” he says.
“For the first time in 30 years, the impression that emerges is that the best paid people do not work in the big banks. There are other areas of financial services where you can make more money. This is a fundamental change,” said Mr. Johnson. We can thus see an exodus of high-risk occupations which is now a tendency with non-bank institutions such as hedge funds, very opaque and poorly regulated, where earnings exceed more often those of the banks.