It's going to be a difficult bonus round. As we go into the third quarter and banks begin their 2020 appraisal processes, it will be hard to argue that some traders haven't done exceptionally well. In the investment banking microcosm, it will also be hard to argue that those traders shouldn't get far higher pay.
The new index from banking intelligence firm Coalition illustrates the issue. In the first half of 2020, revenues in fixed income currencies and commodities (FICC) trading rose 56% versus the same period of 2019.
Coalition doesn't break out revenues by business within FICC, but it does note that revenues doubled in G10 rates and that government bond trading and interest rate swaps did particularly well this year. There was strong growth too in G10 FX and emerging market macro. Meanwhile, Coalition says investment grade spread (credit) products were "robust," while structured credit and distressed trading revenues fell slightly, and revenues on securitization and muni desks fell too.
It's in rates and FX ('macro'), then, that traders will be most expectant of generous bonuses. All the more so because macro headcount has been decimated: Coalition notes that banks made "large layoffs" in G10 rates and commodities between the first half of 2019 and 2020; the remaining ultra-lean desks oversaw this year's doubling of revenues.
Perversely, headcount in investment banking divisions (IBD) remained flat over the same period - even though revenues in areas like M&A fell in the first half.
So, will macro traders get paid this year? Given their reduced numbers and dramatically increased revenues, the case for substantially higher bonuses is clear. The Coalition chart below shows a ~60% productivity increase across the whole of banks' FICC businesses, driven by traders on macro desks. Productivity increases in other divisions are negligible by comparison.
In the circumstances, it would seem reasonable if macro bonuses rose by at least 20% in 2020. Respondents to our recent survey certainly considered themselves deserving. "We have carried on working as hard if not harder as before," said one macro trader. Another said he expected to get paid "fairly" given how hard he'd worked. No one expected to get nothing.
Zero bonuses may be unlikely in macro trading, but as we've noted before writedowns elsewhere in banks still have the potential to rain heavily on the investment bank bonus parade for 2020. If this happens, Coalition's research suggests equities traders and investment bankers (particularly M&A bankers) will be drenched first. Macro traders should still get something, even if it's far less than their productivity would seem to merit.
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