Bank of America Corp., the second-biggest U.S. lender by assets, told its investment bankers to expect compensation packages that average 25 percent less than last year, said two people with knowledge of the discussions.
Executives gave the guidance this month ahead of formal 2011 pay discussions scheduled for this week, said the people, who declined to be identified because the talks are private. The compensation cut includes salary and bonus, the people said. Jessica Oppenheim, a spokeswoman for the Charlotte, North Carolina-based company, said she couldn’t comment.
“Until things really come back, no one should be expecting compensation like they got in the past,” said Jeanne Branthover, a managing director at Boyden Global Executive Search Ltd. in New York. “There are going to be very strong people who will not be compensated as they expected, and they will keep their ears open to move for more money.”
Wall Street firms are curbing pay for investment bankers and traders as the companies succumb to revenue and regulatory pressures. Bank of America Chief Executive Officer Brian T. Moynihan, 52, is scouring the global banking and markets unit for expenses to cut after a 58 percent stock plunge last year.
While the company doesn’t break out pay data for its investment bankers, people in the industry with several years of experience may earn from about $500,000 into “the millions,” Branthover said. Bank of America’s global banking and markets unit had about 12,000 people at the start of 2011, according to a company presentation.
The division, run by co-chief operating officer Thomas K. Montag, reported its second straight quarterly loss last week as the European sovereign-debt crisis roiled markets. The business lost $443 million in the fourth quarter, following a $302 million loss in the preceding period. Its annual profit plunged to $2.97 billion last year from $6.3 billion in 2010.
Fees from investment banking, which includes advising clients on mergers and acquisitions as well as managing sales of shares and bonds, declined 35 percent in the fourth quarter to $1.1 billion, the bank said. The market was “challenging” because of Europe and the fallout from Standard & Poor’s downgrade of the U.S. credit rating, the lender said.
“Trading was strong in the first part of the year, but with the issues in Europe, the U.S. downgrades, the downgrades of our company and changes in client risk appetite, results were weak in the second half,” Moynihan said last week on a conference call with analysts. “We need that business to come back or we’ve got to do more in expenses.”
Moynihan may trim as much as $3 billion in annual costs from investment and commercial banking, trading, and wealth-management units in the latest phase of his efficiency plan, dubbed Project New BAC. That is in addition to the $5 billion targeted from retail and back-office operations, mostly accomplished through eliminating 30,000 jobs.
The review, which is scheduled to be complete in April, probably will include staff reductions. Firms including Barclays Plc and Credit Suisse Group AG have dismissed staff as revenue from trading stocks and bonds has eroded.
Compensation declines at Bank of America mirror actions by other firms. Morgan Stanley is reducing pay for senior investment bankers and traders by an average of 20 percent to 30 percent for 2011, people with knowledge of the move said last week. The firm is also capping immediate cash bonuses at $125,000 as it seeks to defer the pay of senior executives.
Goldman Sachs, JPMorgan
Goldman Sachs Group Inc. reduced compensation and benefits expense 21 percent to $12.2 billion in 2011. That was enough to provide $367,057 to each of its 33,300 employees, down from $430,700 for the 35,700 workers at the end of 2010.
JPMorgan Chase & Co., the biggest and most profitable U.S. bank, reported earlier this month that it lowered pay at its investment bank 9 percent in 2011, enough for an average $341,552 per person. Average compensation is derived by dividing the overall compensation pool by the number of employees, and doesn’t represent actual pay for individuals.