Wall Street Traders’ Bonuses to Drop as Much as 30%, Study Says

Wall Street will cut year-end bonuses for fixed-income and equities employees by as much as 30 percent from last year, according to revised estimates from Johnson Associates Inc.

Bonuses for fixed-income and trading department are expected to drop 20 percent to 30 percent, a reversal from a May estimate that they would rise 10 percent to 15 percent, according to the New York-based compensation consulting firm. Senior managers will probably receive bonuses that are unchanged to 30 percent lower, the firm said.

The new estimates are driven by a “lack of economic recovery” as well as regulations and the “ongoing uncertainty in world markets,” according to the e-mailed report.

Lower-than-expected U.S. economic growth in the first half, a simmering debt crisis in Europe, and the downgrade of the U.S. government’s rating by Standard & Poor’s have contributed to a 20 percent drop in the S&P 500 Financials Index (S5FINL) this year. Goldman Sachs Group Inc. (GS), the fifth-biggest U.S. bank, reported on July 19 that fixed-income trading revenue plunged 63 percent from the first quarter.

Wall Street firms set aside a portion of revenue to pay year-end bonuses. Goldman Sachs cut its compensation pool 9 percent in the first half from the same period last year. JPMorgan Chase & Co. (JPM)’s investment bank kept its first-half compensation expense unchanged, while Morgan Stanley (MS) said on July 21 that it set aside 10 percent more to pay bankers and traders.

Johnson said bonuses for equity traders will be flat to down 15 percent, while employees in the prime brokerage divisions that service hedge funds may still get as much as 5 percent more in bonuses.

Investment bankers, both merger advisers and employees in underwriting departments, will probably get 5 percent to 10 percent more this year, the firm said. Employees in stock funds, private equity and hedge fund workers and people who advise high net worth individuals will probably get bonuses that are flat to 5 percent higher, Johnson said. Fixed-income asset managers may get up to 10 percent more, according to the report.

To contact the reporter on this story: Christine Harper in New York at charper@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net.

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