Citigroup Said to Cut Traders’ Bonuses After Weak Year-End

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Citigroup Inc. reduced the bonus pool for fixed-income and equities traders and salespeople after their division’s lackluster performance in the final weeks of the year, according to a person briefed on the matter.

The bonuses will drop 5 percent to 10 percent on average, said the person, who asked not to be identified discussing compensation. Citigroup, the third-biggest U.S. bank, planned as recently as mid-December to keep the bonus pool unchanged from 2013, a person briefed on the matter said at the time.

Chief Executive Officer Michael Corbat, who said last month that fourth-quarter trading revenue would decline by about 5 percent, is adjusting compensation for employees to fit the bank’s performance. The bonus cuts suggest the drop could be steeper than Corbat predicted, said David Hilder, an analyst at Drexel Hamilton LLC.

“It’s an unpleasant surprise when it’s in the last two weeks of the quarter and everyone has set up their budgets,” said Hilder, who recommends investors buy Citigroup shares. “To the extent you give up revenue in the businesses where you have a lot of variable comp, like trading, you don’t have to pay people as much. That’s how it works.”

Jamie Forese, 51, who heads the institutional clients group that includes the trading businesses, briefed the bank’s trading-desk chiefs about the bonus cuts earlier this week, the person briefed on the matter said. The adjustments were necessary because revenue failed to meet the bank’s projections, the person said.

Not Alone

Corbat, 54, said at a Dec. 9 conference that he expected fourth-quarter markets revenue to slide in the “the 5 percent-ish range, maybe a bit more” from the same period a year earlier, when the bank brought in $2.86 billion from trading stocks, bonds, currencies and commodities.

While a 5 percent decline would have meant about $143 million in lost revenue, the revenue drop could be as much as 7 percent, or $200 million, Hilder said.

Corbat isn’t alone. Bank of America Corp., the second-biggest U.S. bank, also forecast a decline, CEO Brian T. Moynihan said at the same event, without providing an estimate for the size of the drop.

Bank of America moved to shrink its bonus pool after disappointing December results, the Wall Street Journal reported, citing people familiar with the matter. The move affects investment-banking and securities employees at the Charlotte, North Carolina-based bank, the newspaper said. John Yiannacopoulos, a company spokesman, declined to comment.

Other Banks

JPMorgan Chase & Co. may pay traders 15 percent less than a year earlier, with the foreign-exchange and rates employees the hardest hit, the Journal reported. Investment bankers will get increases of a few percentage points, the newspaper said. Brian Marchiony, a JPMorgan spokesman, declined to comment on the figures in the report.

Analysts including Jeff Harte of Sandler O’Neill & Partners estimate that Goldman Sachs Group Inc.’s fixed-income trading fell in the fourth quarter, leaving full-year revenue little changed from 2013. That would indicate traders are likely to see bonuses stay roughly in line with the previous year. Michael DuVally, a spokesman for New York-based Goldman Sachs, didn’t respond to an e-mail seeking comment on bonuses.

The Standard & Poor’s 500 Index fell in December and crude oil had its worst year since 2008 amid a global supply glut, dragging commodities to a fourth straight annual drop.

(Updates with BofA spokesman, JPMorgan and Goldman Sachs starting in ninth paragraph.)
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