Following in Wall Street's footsteps, the largest UK and Europe-based investment banks slashed compensation as a fraction of revenue in 2009. Analysts remain divided over whether last year's compensation ratios represent a "new normal" or a one-off event. Look for politics to produce a large part of the answer.
HSBC, Barclays, RBS and Deutsche Bank are among institutions who lowered their comp ratios, according to The Wall Street Journal. HSBC's ratio within its investment bank shrank to 22 percent last year from 36 percent in 2008, while RBS's collapsed to 27 percent from 76 percent. (Credit Suisse and UBS reported negative net revenue from investment banking in 2008, so no year-to-year comparison could be made.) Those declines aligned with similar moves reported in January by Goldman Sachs, JPMorgan and Morgan Stanley.
Analysts disagree on whether lower compensation ratios will persist in future years. A Citigroup research report published last week forecasts "structurally lower compensation ratios," the WSJ says. But Barclays analysts said Goldman's 36 percent ratio was "unsustainably low."
Investment Banks Cut Compensation Ratios [WSJ]
Goldman Lists New 'Risk': Bad Press [WSJ]
Webb to Advance 50 Percent Bonus Tax Proposal for Bailed-Out Banks [Bloomberg News]
Cantor Fitzgerald to Expand Debt Business as Banks Curb Lending [Bloomberg News]
Buffett: Directors, Officers Should Be Punished For Risky Business [Investment News]
Larry Fink's $12 Trillion Shadow [Vanity Fair]
Want To Be a Chief Executive? Get an MBA [FT]