Bank of Nova Scotia and Canadian Imperial Bank of Commerce had the highest jump in incentive pay this year among Canada’s six-biggest banks as record profits for the group led to a 6.9 percent increase in bonuses.
Scotiabank, Canada’s third-biggest lender, boosted performance-based compensation by 24 percent, while CIBC set aside 11 percent more for bonuses, according to earnings reports this month. Royal Bank of Canada (RY), the country’s largest lender, was the only firm to cut pay.
Canada’s six-biggest banks collectively set aside C$9.47 billion ($9.39 billion) in incentive compensation for the year ended Oct. 31, compared with $8.86 billion in 2010, according to company reports. Bonus pools rose after the lenders posted combined record profits of C$23.6 billion, up 15 percent from a year ago.
“A lot of people have done a pretty good job of building businesses and creating profits in a pretty bad environment,” said Jim Beqaj, founder of Toronto-based consulting and recruitment firm Beqaj International Inc. “Bonuses are, depending on who you are, probably anywhere from flat to up a little bit. And flat is a big win, especially coming up into difficult times.”
Bonus pools at Canadian banks rose as year-end payouts at their U.S. and European counterparts are poised to plunge. Wall Street financial-services professionals can expect to receive “sharply lower” year-end bonuses in 2011 compared with the previous year, according to a Nov. 8 report by New York-based compensation consultants Johnson Associates Inc. Global firms have cut more than 200,000 jobs this year, eclipsing the 174,000 in 2009, according to data compiled by Bloomberg.
Citigroup Inc. (C) said this week it will cut about 4,500 jobs to reduce costs amid slumping revenue and “unprecedented” market conditions, joining firms including Bank of America Corp. (BAC) and UBS AG (UBSN) in slashing positions. European banks may be forced to cut more jobs as the sovereign-debt crisis erodes earnings and higher capital requirements force lenders to sell assets and shrink balance sheets.
Canadian lenders, ranked the world’s soundest for four straight years by the Geneva-based World Economic Forum, haven’t announced any major job reductions this year.
Canadian banks bolstered profits from consumer lending and asset management, helping counter declines in trading revenue and a slowdown in investment banking at some firms.
The pools reflect the amount reserved, not paid out, and don’t include base salaries and other compensation. Bonuses are typically awarded this month.
Bank of Nova Scotia (BNS)’s performance-based compensation rose to C$1.35 billion as the lender added 4,590 employees through acquisitions. Scotiabank bought an investment-banking unit of Commerzbank AG in Brazil, Uruguay’s Nuevo Banco Comercial and took over DundeeWealth Corp. in Canada. The bank said 14 percent of the increase was related to acquisitions and 4 percent was tied to commissions linked to revenue growth in wealth management.
CIBC, the No. 5 bank, increased performance-based compensation to C$1.23 billion after the Toronto-based lender posted a 65 percent jump in annual profit at its CIBC World Markets unit.
Royal Bank, also based in Toronto, set aside C$3.3 billion for variable compensation this year, the highest among Canada’s lenders. That’s 1 percent less than in 2010. The amount includes commissions paid to investment advisers, according to Janice Fukakusa, the lender’s chief financial officer.
Royal Bank will be paying “moderate bonuses that reflect performance” for Canadian consumer banking employees. Bonuses at RBC Capital Markets may be “still on the low side” compared with other investment banks, Fukakusa said in a Dec. 2 interview.
Toronto-Dominion Bank (TD) and Bank of Montreal (BMO) increased incentive compensation by 7.2 percent. Toronto-Dominion, the second-largest lender, reserved C$1.43 billion for bonuses, while Bank of Montreal, the fourth-largest, set aside C$1.56 billion.
“Not only did we have a good year in terms of earnings, but we repositioned the company,” Chief Executive Officer William Downe said in a Dec. 6 interview. “What that implies is that if you work here we’re going to do well this year and we’re going to do well in the long-term.”
National Bank of Canada (NA)’s variable compensation rose 13 percent to C$602 million, as asset management and consumer lending led the annual profit rise at the Montreal-based bank.
“Employees at the investment banks seem happy,” Bill Vlaad, president of Toronto-based recruitment firm Vlaad & Co. said. “Bonus increases are back to 2009 levels, and in many cases are up 15 to 25 percent.”
Newer investments such as agricultural business and alternative energy are starting to pay off, while mining and energy continue to do well, Vlaad said. Sales and trading are unchanged or slightly down on a tough last six months, and there were reductions in proprietary trading, liability and structured products that ate into bonus pools, he said.
Research departments face pressure on expenses, and credit groups are trimming jobs to keep costs in control, Vlaad said.
“The investment banking business looks good for next year, with M&A looking strong, which will translate to better bonuses,” Vlaad said. “It all depends, however, on whether sales and trading can make money as to how good it will be.”
In the U.S., fixed-income traders will be hardest hit, with payouts expected to fall by as much as 45 percent, according to Johnson Associates. Equities traders and senior managers will see bonuses cut by up to 30 percent, while payouts for investment bankers may drop by 20 percent.
London bankers may see bonuses shrink by about a fifth from last year as Europe’s sovereign-debt crisis crimps revenue. The average worker in the U.K. capital’s Square Mile and Canary Wharf financial districts expects to get a bonus valued at about 19,920 pounds ($31,080), or 24 percent of their base pay, according to a survey by recruitment firm Astbury Marsden. That’s down from about 35 percent of base pay, or 25,570 pounds last year. The estimate is based on an average salary of 83,000 pounds.