Unfortunately for bonuses, 2009 is a difficult act to follow
With the UK coalition government poised to announce measures to 'tackle unacceptable bonuses' in today's Queen's Speech, banks won't need much excuse to suppress cash bonuses this year.
Their job may be made a little easier by what we understand are the 'challenging' budgets that have been set in some product areas. After an unbelievably good year in 2009, some desks are rumoured to be struggling to meet revenue targets for 2010. Failure to meet targets is leading to early outbreaks of bonus neurosis.
The problem is thought to be particularly acute at banks which lost share in the first quarter. These include: Barclays Capital, whose share of fixed income trading went from 15.3% in the fourth quarter of 2009, to 8.4% in the first quarter of 2010; Nomura, whose share went from 2.8% to 1.2%; or even RBS, whose share of equities trading went from 5.5% to 2.8%.
"It's definitely harder to meet the budgets this year - a lot of P&L last year was from really easy flow based on repackaging risk. This year, that doesn't exist," says Russell Clarke at search firm FigTree Search.
In fact, the first quarter started well. According to Morgan Stanley, revenues across the industry were up 7% year on year in FICC, 21% in equities, and 22% across IBD. The question is whether this can be maintained.
The only consolation is that the FSA is pushing for banks to eschew revenue targets as a determinant of bonuses. "Banks like to see 10-15% revenue growth in a business annually, but they're being discouraged from linking this to pay," says one senior compensation advisor to the regulator.
