Wall Street is gearing up for a bonus whiplash

All this activity meant long, stressful hours for the bankers. But that’s part of the deal on Wall Street: work until you almost collapse and wait for your lavish bonus check to hit your bank account.

See here: Wall Street’s average bonus for 2021 hit an all-time high of $257,500, up 20% from a year earlier, according to estimates from the New York State Comptroller. (Just to be clear: this is a prime figure, not a base salary. So yeah, we’re not exactly calling a GoFundMe for these guys.)

This year, however, it’s a whole different story.

Anyone expecting the same kind of cushy bonus will be disappointed. Premiums on Wall Street are drastically reduced this year as trading volume dries up, fueling fears that banks will lay off staff at the end of the year.

A new report from consultancy Johnson Associates predicts year-end bonuses will decline across financial services, with some bankers seeing bonuses reduced by 45% or more from a year ago.

“It was a real shock,” Alan Johnson, the company’s chief executive, told me. “I don’t think any of us really appreciated how much of a bubble the pandemic stimulus has created… now the lights have come on and it’s kinda ugly.”

The differences between 2022 and 2021 are striking to say the least. We went from a bull market to a bear market. From a dovish Fed that boosted the proverbial punch bowl to another warmonger trying to sober everyone up with higher interest rates.

Financial institutions need to tighten their belts a little faster than they had anticipated. The number of global IPOs fell 54% in the first half of this year compared to 2021, my colleague Julia Horowitz reported earlier this summer. Mergers and acquisitions fell 25%.

That’s bad news for banks, which typically derive a large chunk of their revenue from closing deals. JPMorgan Chase’s investment banking revenue fell 61% last quarter. At Morgan Stanley, it fell 55%.

Of course, says Johnson, these companies are still very profitable. “They went from making two tons of money, now they’re going to make a ton of money,” he tells me. “But it’s still a ton of money.”

It’s no surprise that Wall Street bonuses wax and wane with the fate of the markets. But what shocks Johnson is how quickly the tables have turned this year. Banks that continued to hire during the 2021 boom are now at an impasse, likely realizing in hindsight that they were overstaffed.

“There will be layoffs — not mass layoffs, but there will definitely be layoffs at the end of the year,” Johnson said.

Of course, no one celebrates the prospect of handing out pink slips or cutting wages. But no one is throwing a pity party for wealthy Wall Streeters who are about to get a haircut, either.

“The problems here are of course overshadowed by the problems of people in the real world,” Johnson says. “It’s bad when your bonus goes from $1 million to $600,000, but it’s still $600,000.”

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