Photographer: Michael Nagle/Bloomberg

Banker Bonuses Jumping While Traders Brace for Smaller Payouts

  • Gap set to widen further this year as mergers start strong
  • Underwriting fees boost Wall Street investment-banking revenue

Wall Street bankers are celebrating this bonus season, while the party in trading divisions is somewhat more subdued.

Buoyed by record debt-underwriting fees as corporations took advantage of cheap financing, bankers saw their bonuses for last year swell while colleagues in sales and trading braced for smaller payouts. That gap may only widen in 2018 as the U.S. tax overhaul sparked the hottest start for mergers in nearly two decades.

A Tale of Two Divisions

Advisory units thrived, while trading desks struggled in 2017

Source: Company filings.

The dynamic was at play at JPMorgan Chase & Co., the biggest Wall Street firm by revenue, where investment bankers’ 2017 bonus pool grew by about 5 percent, while fixed-income trading personnel saw theirs drop by about 12 percent, according to people with knowledge of the payments. The equities trading bonus pool was roughly unchanged, the people said, asking not to be identified because the information isn’t publicly available.

At Bank of America Corp., the investment-banking bonus pool rose between 5 percent and 10 percent, while the equities one shrank about 5 percent, with deeper declines in some other units, including cash equities. The firm’s annual investment-banking fees were the strongest in at least 10 years, driven by a bonanza in debt underwriting and a record take from advisory work during the last three months of the year.

Banker bonuses didn’t rise as sharply as revenue. Investment-banking fees jumped 17 percent to $31 billion last year at the five biggest U.S. firms. Institutions typically choose to cushion some of the volatility between fixed-income, equities and investment-banking divisions so compensation changes aren’t as abrupt, according to Mike Karp, chief executive officer of recruitment firm Options Group Inc.

Read more about traders expecting smaller bonuses

At Morgan Stanley’s institutional business, total compensation expense for bankers and traders -- which includes salaries, benefits and the cost of some previous years’ awards -- rose 6 percent from 2016. Goldman Sachs Group Inc.’s pay costs for the whole firm climbed 2 percent.

“While some bankers may feel like they deserved a larger increase in pay this year, fixed-income traders probably felt the same way last year when some of their out-performance was funneled to support the investment bank,” Karp said.

Wall Street firms reported fourth-quarter results earlier this month and have begun telling employees the amounts of their bonuses, which can often outstrip salaries to make up the bulk of annual compensation. Bankers and traders typically receive the awards starting this week through the end of February.

— With assistance by Dakin Campbell

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