JP Morgan bonuses hit by Enron effect

Market players claimed that bonuses in fixed income, the most successful market sector last year, have been hit by the bank's losses related to Enron, the insolvent Texas energy trader. JP Morgan's estimates of its exposure grew from initial estimates of $900m (€1bn) to $2.5bn, and it is currently embroiled in a court case with Enron. The firm, which last week reported a 70% fall in year-end profits, would not comment on bonuses, but a recruiter for the investment banking industry said: 'If your bank has exposure to Enron, you will have much more cause to worry about bonuses.'

He predicted that staff at Bank of America are also likely to feel the effects of exposure to Enron when it announces bonuses this week.

JP Morgan's senior managers who brought in revenue saw no decline in their bonus, sources close to the company said. However, other staff - either less senior or not directly bringing in revenue - saw their bonuses fall as much as 30%. The decline reflects an industry-wide trend that began to emerge when Morgan Stanley and Goldman Sachs announced bonuses in December 2001.

The Enron effect on fixed income means that JP Morgan may be one of the few houses not to reward its debt specialists in the wake of a record year for that market. A headhunter at an international recruitment agency in London said: 'On average, fixed income bonuses in London are 10% to 20% up on last year. Fixed income traders have done particularly well.'

However, most US investment banks are thought to have aimed to cut bonus costs by 30% in corporate finance and equities to help pay for a slight rise in fixed income.

Several large European investment banks will announce bonuses in February, including Deutsche Bank, Dresdner Kleinwort Wasserstein and Credit Suisse First Boston.

Despite the potential for cannibalisation of the fixed income bonus pool, Deutsche's London fixed income bankers expect to receive better compensation than other divisions. The same cannot be said for Frankfurt, according to Andreas Weik, an investment bank recruitment specialist with Korn Ferry. 'In Germany, Deutsche Bank is, on average, giving 20% lower bonuses than last year,' he said. The bank declined to comment.

The way bonuses are calculated is very complicated, said one human resources specialist at a European investment bank. 'Most banks have revenue-sharing agreements, so you have to look at it on a bank level, a divisional level, a unit level, a desk level and an individual level.'

Industry sources said Deutsche and Morgan Stanley were among several banks that have raised the threshold above which their fixed income and foreign exchange salespeople receive commission, resulting in commissions closer to 5% than last year's 8%.

IT staff are expected to be among the biggest losers as banks look for cost savings. Last week, Morgan Stanley made 120 IT staff redundant. And IT professionals in New York are seeing basic pay fall as well as bonuses. 'A senior IT professional on $375,000 a year ago is now looking at $180,000 to $200,000. Pay is back down to 1991 levels,' a partner at one New York recruitment firm said.