Just Look At Those Big Grins

For most of the 1980s, Wall Street's pin-striped investment bankers held sway over their shirt-sleeved brethren, the traders. Dealmakers produced the heftiest profits and won the biggest bonuses. "It's a source of tension on Wall Street," says Alan Johnson, a recruiter with GKR International, an executive search firm. "Traders went to New York University or City College, and the bankers went to Yale."

This year, with bonuses on the Street generally up 20%, the traders are raking in more than the bankers. On average, investment bankers' bonuses will grow a modest 10% to 15% from last year, while traders' will jump at twice that rate, Johnson estimates. Top traders will see far heftier increases. "The big numbers this year are driven by the trading and sales side because they have delivered the biggest profits," says Joan Zimmerman, a recruiter with G. Z. Stephens.

The industry has turned in a near-record year. Pretax profits are expected to hit $5.3 billion, close to 1986's record $5.5 billion. About 25% of 1991's profits came from trading for customers and the firms' account. Goldman, Sachs & Co. and Morgan Stanley & Co. are set to hand out fat bonuses, with other large firms expected to give handsome payouts, too. "1991 has been better than 1990, and bonuses will be up materially," says Howard L. Clark Jr., chief of Shearson Lehman Brothers Inc., referring to Lehman Brothers, Shearson's investment house.

WISHFUL THINKING. The glaring exception: Salomon Inc. There, traders and bankers both are settling for less. Bonuses at Solly are down at least 15%, say Street sources, with investment bankers getting some 25% less. In the wake of the Treasury bond-buying scandal, Salomon Chairman Warren E. Buffett has publicly questioned the entire practice of paying big bonuses, saying Wall Street overpays itself at shareholders' expense. But Buffett's views are expected to have little impact. "Buffett stimulated a lot of wishful thinking among Street CEOs. The problem is, with legislators breathing down Solly's throat, it doesn't have the credibility" to force bonuses down industrywide, says Gary Goldstein, president of Whitney Group, a Wall Street recruiter.

A big part of the Street's profits came from fixed-income securities trading, especially such niches as mortgage-backed securities and junk bonds. Traders in these markets will rack up the biggest bonuses, since some are paid up to 20% of what they earn for the firm. And while investment bankers have seen a boom in underwriting volume, fees on corporate securities issues are far lower than merger-and-acquisition fees, which run as high as 5% of the acquisition price. Also, underwriting fees are split between many firms, and only initial public offerings earn as much as 6% of the principal amount.

The Street's most profitable firm is Goldman Sachs. This year, the private partnership is expected to earn as much as $1 billion in pretax profit. That sum is split among 146 partners. Competitors and headhunters speculate that Goldman co-Chief Executives Robert E. Rubin and Stephen Friedman and perhaps two other key Goldman partners will divvy up some $100 million of that, while the lowliest partners are believed to make $2.5 million each. However, all Goldman partners are required to keep their bonuses invested in the firm until they retire.

Morgan Stanley turned in a good year, too, especially in fixed-income trading. Of the $500 million it's expected to earn in 1991, some 40% to 50% comes from trading, most of it from the fixed-income side. Some 10 people will get bonuses of $5 million to $7 million, and close to 40 will receive from $ 1.5 million to $4 million, says an insider. That didn't stop Morgan this month from laying off 45 people. And not one was a trader.

Leah Nathans Spiro in New York

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