When Morgan Stanley and Citi announced their bonuses yesterday, there seems to have been something of a disconnect between expectations and reality. Following reports of double-digit bonus increases at U.S. investment banks, that's what bankers at Citi and Morgan Stanley were expecting. For the most part, this does not seem to be what they got.
"It was like a normal year," says one VP in investment banking at Morgan Stanley. "The boom in fees didn't materialize in bonuses." A VP at Citi said bonuses appear to have been good, but not great. Rumor has it that the pools at the two banks were up by between 5% and 7%.
Similar disappointment seems likely at JPMorgan. At JPM, bonuses for 2021 are supposed to be up by 40% in investment banking, according to a December report by Bloomberg. However, if this is the case, then bonuses must've been cut by a similar amount elsewhere: although the bank said today that it's spent $2.3bn more on bonuses across all divisions. there's little sign of any real increase in pay per head in the corporate and investment bank (CIB) in today's full year JPMorgan results.
Instead, it looks a lot like the increase in compensation spending in JPMorgan's CIB has mostly been consumed by rising headcount. - The bank spent 13% more paying people in its corporate and investment bank last year, but it also increased headcount by 9% (5,813) people. The upshot was that average pay per head was only up 3% on 2020, from $188k to $194k.
This is going to be a shock for JPMorgan's M&A and equity capital markets bankers, who will have been expecting more after their revenues rose by 85% and 43% respectively last year. The only way JPMorgan's investment bankers will get paid substantially more than in 2020 is if the bank cut its fixed income traders' bonuses to almost nothing after revenues in that division fell by 19%. Rates traders stand to be particularly disappointed given what JPM describes as a "challenging" fourth quarter in that business. However, rates revenues are expected to rebound most strongly in 2022, so JPMorgan won't want to upset its rates traders too much.
The message is that the current bonus season is complicated. It's not going to be as shiny as it looked from afar.
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