Investment bankers working on debt underwriting and initial public offerings (IPOs) are expected to see a significant increase in their bonuses this year, with some compensation specialists predictinga rise of up to 35%.
According to a report by Johnson Associates, debt underwriters may see their bonuses climb by 25% to 35% this year, while bankers handling IPOs could see a 20% to 30% jump in their bonuses. The forecast comes after a string of strong second-quarter earnings performances from US and European banks, which have fueled demand for investment banking services.
The strong growth in debt issuance and IPO activity are the main reasons for higher bonuses, as markets continue to recover from the fallout from the coronavirus pandemic. Equity traders may also see their compensation increase by 15%, while their fixed-income counterparts could see a rise of 10%.
At hedge funds, incentive compensation is likely to be up as much as 15%, helped by stronger performance across most strategies. Wealth management and asset management executives are expected to receive 5% to 10% higher incentives this year.
However, not all areas of the financial industry are expected to see a bonus increase. Retail and commercial banking, for example, may see their bonuses down 5% to flat, as real estate remains a concern and commercial lending stays lower.
The forecast is a welcome relief for Wall Street bankers, who have seen their bonuses shrink in recent years. In 2023, total Wall Street profits were up 1.8% to $26.6 billion, but bonuses still shrunk slightly, according to the latest yearly estimates from the New York State Comptroller’s office.
Average bonuses fell 2% to $176,500 from $180,000 the year before, according to the same source. In 2021, as the US and other Western countries emerged from widespread shutdowns, there was a flurry of trading and deal-making, which saw the average bonus handed to Wall Street financiers rise to $240,300 that year.
The bonus forecast is also good news for New York state and city tax revenue, which is heavily reliant on Wall Street bonuses. One in 11 people in New York is employed in the financial services industry, according to state figures.
However, the forecast is not without its caveats. The predictions could be revised with ongoing uncertainty around the upcoming election and the Fed’s possible path toward lower interest rates. Additionally, some businesses will be affected by market volatility and uncertainty more than others, including retail and commercial banking.
Conclusion
The expected increase in bonuses for investment bankers is a positive sign for the financial industry, driven by strong growth in debt issuance and IPO activity. While uncertainties remain, the forecast is a welcome relief for Wall Street, with a potential 35% increase in bonuses. This growth is expected to have a positive impact on New York state and city tax revenue, and is a reflection of the industry’s resilience and adaptability.
FAQ’s
- Q: What is the expected increase in bonuses for investment bankers? A: Bonuses for investment bankers are expected to rise by up to 35% this year.
- Q: Which areas of investment banking are expected to see the highest bonus increases? A: Debt underwriters and bankers handling initial public offerings (IPOs) are expected to see the highest bonus increases.
- Q: What is driving the increase in bonuses? A: Strong growth in debt issuance and IPO activity, as well as a recovery in markets from the coronavirus pandemic, are driving the increase in bonuses.
- Q: Will all areas of the financial industry see a bonus increase? A: No, some areas such as retail and commercial banking may see their bonuses decrease or remain flat.
- Q: How will this affect New York state and city tax revenue? A: The increase in bonuses is expected to have a positive impact on New York state and city tax revenue, which is heavily reliant on Wall Street bonuses.
- Q: Are there any uncertainties that could affect the bonus forecast? A: Yes, ongoing uncertainty around the upcoming election and the Fed’s possible path toward lower interest rates could affect the bonus forecast.
