Bank of America Corp., the second-largest U.S. lender, cut the bonus pool for interest-rate traders by 15 percent to 20 percent as revenue fell, said two people with direct knowledge of the matter.
Senior traders probably got larger percentage drops than lower-paid personnel, according to the people, who asked not to be identified because the awards are confidential. Employees across the Charlotte, North Carolina-based company’s trading units were told the size of their 2013 bonuses last week and will be paid Feb. 14, the people said.
“Rates guys were among the worst-hit last year,” Michael Karp, chief executive officer of recruitment firm Options Group Inc., said in a phone interview. “It was a very tough year in terms of keeping up with the markets and generating revenue.”
Rewards diverged on Wall Street’s fixed-income desks for 2013, with traders of government debt and related instruments hobbled after the Federal Reserve signaled it would taper its buying. Corporate-bond traders fared better as companies took advantage of low rates to issue more debt, with some bonuses rising 5 percent or more at Bank of America, said one person.
Stagnant rates-trading results were offset by stronger credit and mortgage results, Bank of America Chief Financial Officer Bruce Thompson, 49, said Jan. 15. Revenue from fixed-income sales and trading, run by global head David Sobotka, rose 16 percent to $2.1 billion during the fourth quarter.
Bonuses are dictated more by individual performance than the growth or contraction in the compensation pool. Some rates traders saw bonuses hold steady from 2012, while others absorbed cuts of more than 20 percent, the people said.
Interest-rates trading revenue at the 10 largest global investment banks fell 40 percent in the first nine months of last year, and probably dropped 42 percent for all of 2013, according to industry analytics firm Coalition Ltd.
Rates climbed in the second quarter after then-Fed Chairman Ben S. Bernanke indicated the central bank could scale back its monthly bond purchases. Yields on 10-year notes surged more than one percentage point after Bernanke’s comments, reaching 3.01 percent on Sept. 6.
Later in September, the Fed defied the predictions of economists and bankers including Goldman Sachs Group Inc. CEO Lloyd C. Blankfein, 59, when it maintained its bond buying, sending yields down 35 basis points over the next five weeks. It waited until Dec. 18 to announce the first taper of bond purchases, to $75 billion a month from $85 billion.
“If you asked the people who work on a trading desk around Wall Street yesterday, a lot of them were set up the wrong way,” Bank of America CEO Brian T. Moynihan, 54, told CNBC on Sept. 19.
Awards typically are paid in stock and cash, with the equity proportion rising as the total increases, the people said. Bank of America’s stock gained 5 percent this year and more than 40 percent in the past 12 months. John Yiannacopoulos, a company spokesman, declined to comment about compensation.
In Europe, salaries are going up as regulators consider banning bonuses bigger than twice fixed pay. The change is intended to discourage excessive risks.
Bank of America is boosting salaries for some managing directors there by about 20 percent to $500,000, a person with knowledge of the matter said. New York-based Goldman Sachs also intends to increase fixed pay for some senior employees and traders in Europe, a person with knowledge of the firm’s plan said last month.