London bankers bracing for lower bonuses than NY
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.