Bonus Outlook for Bankers Sours

Disappointing 2nd Half
Portends Paltrier Payday
For Wall Street Traders
By JED HOROWITZ
DOW JONES NEWSWIRES
October 6, 2004; Page C3

Wall Street's bonus-conscious bankers and traders are preparing for a pallid payday, in sharp contrast to messages they got from superiors at the beginning of the year.

"This is going to be an interesting year, because the firms didn't manage expectations well," says Gary Goldstein, chief executive of Whitney Group, an executive-recruiting firm in New York. "Business is looking much more tenuous now, and people are cautious about next year, too."

After revenue at most investment banks soared in the first quarter and beat analysts' expectations in the second, the pinstripe crowd was ready for big rewards.

Hopes were dashed, however, when Goldman Sachs Group Inc., Morgan Stanley, Lehman Brothers Holdings Inc. and Bear Stearns Cos. said last month that revenue in their third fiscal quarters, which ended in August, fell significantly from the first half of the year. Merrill Lynch & Co., which ends its quarter a month later than its rivals, had a disappointing second quarter and is expected to register further declines when its third-quarter earnings come out later this month.

"Earlier this year I would have said that total compensation would go up 15% to 20% on average, and a lot better for some top performers," says Russ Gerson, head of the financial-markets recruiting group at A.T. Kearney in New York. "My expectation now is that compensation is going to be up minimally -- 5% to 10% -- and could be revised downward if existing trends continue."

Bonuses on Wall Street are typically the largest component of top bankers' pay, in some cases more than 100% of their six- and seven-figure salaries.

To be sure, Wall Street compensation is still lofty. Veteran bankers with about eight years' experience can expect total compensation of about $825,000 this year, senior traders about $1.6 million and bankers with three years' experience about $300,000, says Wall Street compensation consultant Alan Johnson of Johnson Associates.

That is less than he had projected earlier this year, because backlogs of assignments for mergers and acquisitions and stock and bond sales for corporate customers declined as the year progressed. Overall, pay for bankers should rise an average of 25% this year over 2003 and stay relatively flat for traders and salespeople in fixed-income securities, he says.

Compensation expense declined at Bear Stearns in the third quarter, partly because it set aside less for bonuses and other pay than it had accrued earlier in the year as revenues declined, Buckingham Research Group analyst James Buckingham wrote in a recent report. A spokesman at Bear didn't return calls seeking comment. Spokesmen at the four other biggest U.S. Wall Street houses declined to comment on compensation plans.

Only about 2% of 89 firms in a recent Securities Industry Association survey said they expected bonuses to be "significantly higher" this year than in 2003, while almost 33% said bonuses would be unchanged. (The others said they hadn't decided.) Morgan Stanley, Goldman, Bear Stearns, Merrill Lynch, Citigroup and UBS AG didn't participate in the survey.

Pay scales and bonuses vary widely, based on specialties, individual abilities and geography.

Write to Jed Horowitz at jed.horowitz@dowjones.com

-Rudey

Interview
 

We just did a huge batch of resumes and here is what I noticed:

1) School
2) GPA
3) Standardized Test Scores (SAT, GMAT, etc.)
4) Work Experience
5) Do they seem like they'd enjoy this based on resume?
6) Do they seem like they would be willing to fight for this job?

People were dinged and rejected for all sorts of small things. If you list that you were on the Dean's List except for your last year, you're out. If you had high scores but a low GPA, you're out. You get the picture.

From the first and second round of interviews:
1) Be sincere. I hate these bullshit answers you kids give about how your biggest fault is you work hard.
2) Sell yourself. Don't look at the ground but at me. Don't tell me how you hated your former employer, etc.
3) Look like you can handle it. I got so upset with one person not answering my questions about what they thought their role would be (simple question) I asked him to do a multiplication in his head (he won't be coming back).

To anyone else who is interviewing now is the season where a lot of job offers are coming in if you've gotten past the 1st and 2nd rounds. Good luck.

-Rudey

New Investment Bank
 

I would have thought this would center on municipal finance but the website says otherwise.

It's just an E&Y arm though which means it can't be anything other than advisory since they wouldn't have a capital structure to support underwritings.


http://www.giulianicapitaladvisors.com/

Giuliani Capital Advisors LLC
Investment Banking and Financial Advisory Services Guided by the Giuliani Leadership Principles: Integrity, Objectivity, Loyalty, Creativity, Accountability

Giuliani Capital Advisors LLC provides investment banking solutions and independent advice to leaders dealing with complex business challenges, strategic transactions, or financial distress.

Giuliani Capital Advisors LLC (“GCA”) is a boutique financial advisory and investment banking firm comprised of senior level professionals who provide lead advisory services to public and private companies, lenders, and other parties-in-interest that are executing financial and strategic transactions. GCA provides a full range of capital raising, mergers and acquisitions, and financial and operational restructuring services.

As an affiliate of Giuliani Partners LLC, a firm that is dedicated to assisting leaders solve critical strategic issues, accelerate growth and enhance the reputation and brand of their organizations, the GCA team can help an organization more clearly and fully define and execute its long-term strategy through value maximizing M&A transactions, cost-effective capital raises, and in-court or out-of-court restructurings. For more information about our affiliate Giuliani Partners.

-Rudey

I'm curious. Define what you mean by "big money."

Jobs that pay much higher than the average salary upon graduation, over 6 figures within 2 years, and over 7 figures if you have the talent without climbing up some corporate ladder and having ceilings on your salary.

-Rudey

Wall Street Bonuses
 

http://www.nytimes.com/2004/12/28/bu...=all&position=

That Line at the Ferrari Dealer? It's Bonus Season on Wall Street
By JENNY ANDERSON

Published: December 28, 2004

Samantha Kleier Forbes, a 30-year-old real estate broker, was getting ready to leave for a vacation to Florida with her mother and sister when she got an urgent call. It was a client who had spent the summer scouring the Upper East Side of Manhattan for an apartment priced between $4 million and $5 million.

The client insisted on seeing more apartments that day, but now she wanted to look in the $6 million range. Her husband, a banker at Goldman Sachs in his late 30's, had just received his year-end bonus.

"Normally this time of year is dead," said Ms. Forbes, a vice president at Gumley Haft Kleier, a residential real estate brokerage. But this winter there is unusual buying interest that she attributes to rich Wall Street bonuses. She is cutting her end-of-the-year vacation short, so she can prepare for an onslaught of clients eager to see apartments.

The year-end bonus is a Wall Street tradition, and for a second consecutive year, the amounts are impressive. Three major Wall Street firms - Goldman Sachs, Lehman Brothers and Bear Stearns - have reported record profits for the year and all are said to have given out handsome bonuses.

The totals in 2003 were already impressive: Lloyd S. Blankfein, the president and chief operating officer of Goldman Sachs made $20.1 million, of that only $600,000 was salary; and E. Stanley O'Neal, the chief executive of Merrill Lynch, received a bonus of $13.5 million and restricted stock worth $11.2 million on top of his $500,000 salary. At the other end of the compensation spectrum, an investment banking analyst right out of college would have made a $65,000 salary and a $35,000 bonus last year. An associate just out of business school might have made $85,000 in salary and a $115,000 bonus.

This year, investment bankers are expected to see gains in bonuses of 10 to 15 percent, amid a year-end flurry of mergers. Fixed-income traders, who have been the best compensated Wall Street professionals in recent years, will also be amply rewarded, but their percentage gains may be smaller than those of bankers. Bonuses, of course, vary by bank, by division and by individual. They reflect the firm's profitability and the group's performance, as well as the individual's contribution.

This year's bonuses do not quite reach the heights touched by star bankers and traders in the heyday of the late 1990's technology bubble. But they are rich enough to persuade many of Wall Street's elite to rediscover conspicuous consumption.

One senior trader is building a sports complex for triathlon training at his house in upstate New York. It will include a swim-in-place lap pool, a climbing wall and a fitness center. Another bought an Aston Martin. For some, upgrading real estate is the first order of business.

But many Wall Street professionals are urging caution, given that the bonus typically constitutes the majority of their compensation. More than a dozen bankers, all of whom would talk about their spending only on the condition of anonymity, said they were all too aware that the good times could end as quickly as they did after 2000, when a $2.5 million income could turn to $800,000 overnight.

"Given the last two to three years when people figured out that this business is pretty volatile, they are going to try and bank a lot of their bonuses," said one managing director at a firm where bonuses have been announced. "They've seen too many people laid off and they realize they can't just spend all their money."

It should be noted that this same banker just bought a $150,000 Aston Martin to park in his garage in Greenwich, Conn.

Another senior banker at a different firm, who is set to receive a $2.8 million bonus, said he had bought his wife a mink coat and was planning a weeklong skiing vacation out West. But he also said he intended to save most of the money. "We're not buying homes or boats, we're not spending on the big things," he said. "We are more relaxed and generous on the small things."

Of course, small is in the eye of the beholder. While the Maybach, an exclusive line of luxury cars made by Mercedes-Benz that starts at $315,000, appears on the wish lists of many bankers, relatively less expensive models from Aston Martin, Bentley and Maserati have also been popular. Michael Parchment, general manager for Miller Motorcars, a luxury dealership in Greenwich, said demand had been soaring.

"It's probably up 20 to 30 percent from the same time period last year," he said. "Unfortunately, production isn't up." The result, he said, are some unhappy bankers.

Wall Street bonuses are expected to total $15.9 billion in 2004 - second only to $19.5 billion in 2000- according to Alan G. Hevesi, the state comptroller of New York. In 2003, bonuses totaled $15.8 billion. Mr. Hevesi said bonuses of that magnitude were "good news for New York."

"It's all taxable income and it means that folks have more disposable income so they will spend money," he said.

Bonus season is always a particularly angst-ridden time for Wall Street. Managers haggle for more money for their employees, divisions fight for a bigger piece of the pie and bankers try to portray themselves as indispensable. In the end, few admit to being happy, at least to their bosses.

"We used to say there's no amount of compensation that amounts to people saying thank you," said Roy C. Smith, a former Goldman Sachs partner who is now a professor of finance at New York University. "They are either sullen or mutinous, but never quite happy."

Midlevel employees did especially well this year. Three senior-level managers at Wall Street firms said that the people who were enjoying the biggest percentage increases over all were second- and third-level associates and junior-level vice presidents.

The ranks of those managers had been thinned after the stock market bubble burst. But this year, a reinvigorated market meant there were too few associates and managing directors to put together client pitches. At least three banks had to guarantee bonus increases of 25 to 50 percent to prevent defections to other firms. The result is that a third-year associate who might have made $200,000 in income last year could receive $350,000 this year.

The manager with the Aston Martin said that last year's compensation packages for associates were ridiculously low. "You had third-year associates making $210,000 to $225,000; a lot of these guys are married and have young kids and they are working" very hard, he said.

Many of those associates are expected to use their new wealth to pay off debts incurred from three years of relatively meager bonuses.

But real estate will draw, as usual, a significant portion of the bonuses.

"Usually we get five phone calls a week," said Richard Steinberg, a managing director at Warburg Realty Partnership who shows apartments priced from $10 million to $20 million. "Since bonuses, we've gotten double that from hedge funds, Wall Streeters and money managers. I've gotten more phone calls since Dec. 15 than from any other year."

Late-night entertainment may also benefit from the rise in bonuses, given Wall Street's reputation as something of a boys' club.

"Certainly the Wall Street crowd is very special to us," said Lonnie Hanover, a representative for Scores, a high-end strip club in Manhattan. "December is an amazing month for our business, but it's everything, it's Christmas bonuses, Christmas spirit. They have their official parties and then the unofficial party here."

Even the cautious are probably going to treat at least part of their bonus as play money.

One senior investment banker at a big Wall Street firm said he was putting this year's money "directly into the bank."

"I have a sailboat, a motor boat, an apartment, an S.U.V.," he said. "What could I possibly need?" After brief reflection, however, he continued: "Maybe a little Porsche for the Hamptons house, but probably not."

-Rudey