Bonus uncertainty teeters on fixed income losses

eFC logo

Wondering what your bonus will be this year? So is your boss. Nearly one third of banks are still uncertain about the level of bonuses to be paid out at the end of this year with last quarter's drop in fixed income revenues weighing down the bonus see-saw.

A survey by the Securities Industry Association (SIA) found 31.5% of banks still uncertain about the size of bonuses. This was higher than last year, when a similar study found only 13.2% of respondents unable to project bonus changes. The SIA survey covered 90 banks with a combined staff of nearly 122,000.

The bad news for anyone hoping for a raise is that another 31.5% of banks expected bonuses for this year to be the same as those paid in 2003. Almost 20% expected them to be slightly higher, 9.0% expected them to be slightly lower, and 4.5% expected them to be significantly lower. Only 2.2% reckoned on payouts being significantly higher.

Alan Johnson, a Wall Street Compensation specialist, forecast last month that Wall Street bonuses would rise an average of 15% in 2004. Following the announcement of mixed third quarter results by Bear Stearns, Goldman Sachs, Morgan Stanley and Lehman Brothers, he said he stands by his prediction: 'Firms are still making money. They are not losing out.'

The SIA's survey does, however, suggest a loss in confidence. In 2003, over 30% of respondents expected bonuses to rise compared to the poor payouts of the previous year. This year that figure is closer to 20%.

Vasco Moreno, a banking analyst at Keefe Bruyette & Woods in London, said the uncertainty uncovered by the SIA is down to fixed income divisions: 'The big question is how much fixed income will be able to continue subsidising bonuses in other divisions.' After a bumper first two quarters, fixed income has done less well in the past three months. At Morgan Stanley, for example, fixed income sales and trading revenues fell 35% during the third quarter.

In 2003 the SIA found average Wall Street bonuses ranged from 19.2% of base pay at the smallest firm, to 29.4 percent in midsize firms, and 35.8 percent in the larger firms. What they will be this year looks like anyone's guess.