European banks didn't pay badly last year. This year will be different

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Anyone who tells you categorically that European banks' bonuses are a lot lower than U.S. banks' bonuses in this bonus round is jumping the gun. - U.S. banks have already told everyone how much they're getting for 2018, but most European banks won't tell staff their numbers for another few weeks. No one knows exactly what European bankers will be paid yet. But it's becoming very clear that bonuses at European houses are not going to be great.

The Financial Times reports today that Credit Suisse is freezing its bonus pool for 2018 at the level of 2017 and allocating less of it to traders (its corporate finance bankers will get more). Bloomberg reported previously that Deutsche Bank will be cutting its bonus pool by 10% this year (maybe by even more given the huge drop in compensation spending at Deutsche's corporate and investment bank in the fourth quarter). SocGen CFO William Kadouch-Chassaing spelled out today that, "It will not be a good year for traders' bonuses," following earlier suggestions that trading bonuses at SocGen will be cut 25%. And BNP Paribas's bonuses seem highly likely to suffer from the bank's attempt to find an additional €350m ($397m) in cost savings. 

Among European banks this only leaves Barclays and UBS to make amends. However, Barclays is being stalked by an activist investor determined to sell-off its investment bank and may not be inclined to go heavy on banker/trader pay. And UBS bankers had a terrible fourth quarter with the result that the bank cut the proportion of revenues it's paying in compensation to a multi-year low. 

All of this matters.  Firstly, U.S. banks don't appear to have paid that badly for last year. "As a rule of thumb, good performers at U.S. banks have been paid flat to up 15% for 2018," says one headhunter. "- Poor performers are down around 10% ." As we reported last month, Morgan Stanley's bankers are widely held to be happiest with their bonuses following reports that the bank was planning to increase its bonus pool by 'low to mid-single digits' in percentage terms. The Europeans look miserly by comparison. 

It also matters because this isn't the first time European banks have hacked at their bonus pools. SocGen, for example, cut its traders' bonus pool by 25% last year as well. Credit Suisse cut its bonus pool by 30% in 2015. Deutsche Bank staff are still smarting from the removal of their performance bonuses in 2017.  Europeans can't be trusted to pay. 

Even so - and surprisingly - top European banks were among the most generous to their material risk takers (MRTs) in the last bonus round, for 2017. As the chart below shows, average MRT pay for 2017 was highest at UBS, followed by Deutsche Bank. It was lowest at Standard Chartered. U.S. banks in Europe were somewhere in the middle. 

Banks themselves are compelled to publish figures for how they compensate MRTs (typically senior bankers, senior traders and senior control staff), meaning the figures below have some validity. The numbers aren't entirely comparable - European banks publish MRT pay figures for their entire global operations, U.S. banks stick to Europe; and some banks classify MRTs less liberally than others.  They do, however, suggest that European banks were more generous than most people think when they paid bonuses last year. It seems unlikely that this will be repeated in 2019. 

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