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