Year’s failed deals sink Wall Street bonuses

WALL Street bonuses are expected to decline for the third consecutive year, reflecting a period of busted mergers, limited trading activity and muted hedge fund returns.

The payouts are projected to be from 5 percent to 10 percent lower this year, according to an annual report to be released yesterday by Johnson Associates, a compensation consulting firm. Bonuses fell about the same amount last year from 2014. The projection confirms a report last month by the New York State comptroller that said firms set aside 7 percent less for bonuses through the first half of this year compared with last year.

While mergers and acquisitions have been active (and hit record levels in 2015), the bankers who advise on the deals get paid largely when they are completed. This year, antitrust officials thwarted a number of large mergers, including Halliburton’s $35 billion bid for Baker Hughes, as well as the consolidations of the health insurance companies Anthem and Cigna, and Aetna and Humana.

Pfizer and Allergan abandoned their enormous deal after the Treasury Department announced new tax rules, killing $200 million in fees that the bankers were supposed to collect.

In addition, choppy markets damped stock trading activity and prevented skittish companies from making their debuts as public companies, except for a few prominent offerings. Investors dumped hedge fund holdings because of poor returns and high fees.

Alan Johnson, the founder of Johnson Associates, describes this pattern as a “malaise”, and one that is unlikely to reverse itself anytime soon.

“I don’t see it changing for the next year or two, either,” he said in a telephone interview. “The pressures in the industry on profit and fees are going to continue, and I think pay will likely continue to decline in 2017.”

Even more than in past years, competitors and clients pressured banks to reduce fees, as there was more disclosure around what companies can and do charge clients, Johnson said.