Macaskill on markets: Bad days for bonus maximizers
The confirmation of disappointing third-quarter sales and trading revenues for most banks set the stage for a crucial fourth-quarter push by investment bankers – the push to maximize their own bonus payments.
Jon Macaskill is one of the leading capital markets and derivatives journalists, with over 20 years’ experience covering financial markets from London and New York. Most recently he worked at one of the biggest global investment banks
The process will be unusually fraught with anxiety this year, as bankers are aware that the early rush of post-crisis rehiring is now over. The job cuts at some firms can still be viewed as trimming at the edges but they underscore the end to the build-out by most dealers.
That signals a strengthening of the hands of senior managers, who remain under pressure from politicians and shareholders to demonstrate progress in reducing industry-wide compensation levels and ratios.
Unfortunately for managers, compensation ratios are difficult to cut when revenues are disappointing. After hitting a new earnings record in 2009, with an all-in bet on the fixed-income markets while competitors were weak, Goldman was able to cut its compensation accrual entirely towards the end of the year.
Popular outrage over bonus levels was intense and a fall in the compensation-to-net-revenue ratio could be cushioned by pointing to absolute payment levels that felt respectable to most employees, with the possible exception of some senior London-based staff.