US banks prepare for record bonuses
Big three may pay $29.7bn
November 10, 2009
By Michael Moore and Ian Katz New York and Washington
Financial crisis survivors Goldman Sachs Group, Morgan Stanley and JPMorgan Chase's investment bank are set to pay record bonuses this year.
The firms - the three biggest banks to exit the troubled asset relief programme - will hand out $29.7 billion (RÀ.3bn) in bonuses, according to analysts' estimates. That is up 60 percent from last year and more than the previous high of $26.8bn in 2007.
The money, split among 119 000 staff, equals $250 400 each, almost five times the $50 303 median household income in the US last year, data show.
The three would award more in stock and defer more cash payments under pressure from regulators to tie pay to long-term results, experts said.
They might face public wrath over the size of bonuses after the government injected capital into all the major financial institutions following Lehman Brothers' collapse in September last year.
Bonuses for employees in fixed income are likely to jump the most, between 40 percent and 45 percent, while employees in asset management may see no growth in their year-end bonuses, according to a report from Options Group.
Average bonuses for employees at financial firms worldwide will rise about 35 percent to 40 percent this year, according to the annual report, which is set to be released this week.
However, they would remain below 2007 levels after dropping an average of 40 percent to 45 percent last year, the report said.
Managing directors in high-yield credit sales are expected to see some of the largest average increases in bonuses, a 50 percent jump to a range of $1.3 million to $1.7m.
The bonuses of directors in commodity sales units may climb 50 percent to a range of $650 000 to $850 000, according to the report.
Managing directors in commodities trading will receive the largest bonuses, an average of $4m to $6m each. The report does not break out bonuses from total compensation for positions above managing director.
Morgan Stanley is among banks that are offering a larger portion of bonuses in stock and instituting so-called clawback clauses to tie incentive pay to risk, the report says. JPMorgan and UBS are also raising base salaries for some employees to reduce the share of bonuses in total pay.
Securities firms use slightly less than half of their revenue to pay salaries, benefits and bonuses, a percentage that is adjusted throughout the year. In the first nine months, Goldman Sachs, Morgan Stanley and JPMorgan's investment bank told their shareholders that they had set aside $36.4bn for compensation, up 27 percent from the same period a year earlier.
The three firms will likely set aside $49.5bn for compensation for the full year, according to estimates from David Trone, an analyst at Fox-Pitt Kelton Cochran Caronia Waller. That is up from $30.9bn last year and $44.7bn in 2007.
The rise in compensation is led by Goldman Sachs, which had record profit in the second quarter. Its compensation expense is expected to more than double from last year to $21.9bn, or about $691 000 per employee, according to Trone's estimates.
The expense at JPMorgan's investment bank is expected to jump 55 percent to $12bn, about $482 400 for each employee, while Morgan Stanley's compensation cost will rise 27 percent to $15.6bn, or $ë 000 each.
Year-end bonuses usually account for about 60 percent of compensation, the Options Group report says. While the total this year is expected to be greater than in 2007, it will come to less per employee than the $256 000 paid out that year by the three firms because of increased staffing. - Bloomberg
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