Lon­don bankers brac­ing for lower bonuses than NY

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Bankers in Lon­don, the hub for se­cu­ri­ties firms in Europe, are brac­ing for lower bonuses com­pared with New York coun­ter­parts as earn­ings from the re­gion plum­met and pres­sure to tighten com­pen­sa­tion mounts.

The bonus pool for bankers in Lon­don’s fi­nan­cial district, known as the City, may fall by one-third to 4.4 bil­lion pounds in 2012 from a year ear­lier, the Cen­tre for Eco­nom­ics & Busi­ness Re­search Ltd. said this month.

In­vest­ment bankers and traders at Euro­pean banks should ex­pect at least a 15 per­cent cut in pay this year, while U.S. lenders may leave com­pen­sa­tion un­changed, three con­sul­tants sur­veyed by Bloomberg said. That’s be­cause bonus pools at Euro­pean banks may be re­duced by as much as half, while those at US firms, which can cush­ion the im­pact of fall­ing fees in the re­gion with earn­ings from home, may fall 20 per­cent, they said. “The real split is coming, and we will see the quantum di­vide this year,” said Tom Gosling, a part­ner at Price­wa­ter­house­Coop­ers LLP in Lon­don, re­fer­ring to the dif­fer­ence in pay be­tween the two fi­nan­cial cen­ters. “U.S. reg­ula- tors don’t have the same ob­ses­sion with pay struc­tures that Euro­pean reg­u­la­tors have.” While lower pay for all bankers re­flects what may be a tem­po­rary drop in busi­ness, cuts at Euro­pean lenders prob­a­bly will be struc­tural rather than cycli­cal, ce­ment­ing a two-tier sys­tem, said John Pur­cell, chief ex­ec­u­tive of­fi­cer of Pur­cell & Co., a Lon­don search firm. They also could spur some em­ploy­ees to re­lo­cate, ac­cord­ing to re­cruit­ment com­pany Ast­bury Mars­den.

Euro­pean tax­pay­ers still haven’t been re­im­bursed for bail­ing out firms such as Royal Bank of Scot­land Group Plc and Amsterdam-based ING Groep NV (INGA), and the re­gion’s lenders face fur­ther losses amid rate-rig­ging and money-laun­der­ing scan­dals. As a re­sult, pol­icy mak­ers are cap­ping bonuses and forc­ing banks to de­fer more com­pen­sa­tion and claw back pay. “Europe is mov­ing into a new phase of heav­ier and more in­tru­sive bank­ing reg­u­la­tion re­quir­ing more cap­i­tal, greater liq­uid­ity, lower lever­age and tighter re­stric­tions that’s likely to push pay lower in par­tic­u­lar for cap­i­tal-in­ten­sive prod­ucts,” said Lex Ver­weij, a Lon­don-based part­ner at McLa­gan, a unit of Aon He­witt LLC, who ad­vises fi­nan­cial firms on pay. “Banks are fac­ing pub­lic pres­sure to slash com­pen­sa­tion sig­nif­i­cantly, even where per­for­mance hasn’t been that bad.”

The re­gion’s sovereign­debt cri­sis has crimped rev­enue at Euro­pean firms. In­vest­ment­bank­ing fees, a key com­po­nent in com­pen­sa­tion, may fall 20 per­cent to about $15.8 bil­lion in West­ern Europe this year from 2011, New York-based re­search firm Free­man & Co. es­ti­mates, based on an anal­y­sis of deal­mak­ing and eq­uity, bond and syn­di­cated-loan sales. Fees in the U.S. may rise 5 per­cent to $39.5 bil­lion, Free­man said.

In­vest­ment-bank­ing fees in West­ern Europe may be 53 per­cent lower this year than at their 2007 peak, com­pared with a 24 per­cent drop in the U.S. dur­ing the same pe­riod, the firm said.

Stock sales in Europe have fallen 23 per­cent this year, while those in the U.S. are up 23 per­cent, ac­cord­ing to data com­piled by Bloomberg. Gold­man Sachs Group Inc. ( GS), Mor­gan Stan­ley (MS) and JPMor­gan Chase & Co. (JPM), all based in New York, are among the five lead­ing global merger ad­vis­ers this year, and the top five un­der­writ­ers of stock sales are U.S. firms, the data show.

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