By DPA
New York : With six weeks to go for Christmas, bankers and stockbrokers at Wall Street are already worried about their annual bonuses.
This year, the legendary cheques written at the end of the year, ostensibly linked to performance, could be disappointing for many after 2007’s collapse of the sub-prime mortgage market and a credit-market contraction.
The range of Wall Street bonuses is expected to be one of the widest ever. Will it be enough for a luxury apartment or a Ferrari? The answer depends on where the banker or broker works and in what sector.
The simple rule of thumb is: the closer to the real estate and credit messes, the lower the bonus.
Worst affected are fixed-income traders. Their bonuses are expected to be 20 percent to 30 percent lower than last year, according to estimates by compensation experts at Options Group and Johnson & Associates. That could mean several hundred thousand dollars for people who carted off million-dollar bonuses last year.
On Wall Street it is not unheard of for an annual bonus to be five times or even 10 times the base salary.
The outlook is sharply different for equity traders focussed on stocks, derivatives and commodities. These markets have been mostly going up, and bonuses are expected to be as much as one-quarter higher than in 2006. Investment bankers can be pleased with similar expected gains.
“This has been a year of winners and losers on Wall Street, and there will be incredible variance on bonuses from bank to bank,” Michael Karp, chief executive of New York recruiting firm Options Group, told the Bloomberg financial news agency.
On average, bonuses will fall about 10 percent, according to Options Group. Johnson & Associates expects at best no change in the average compared with last year.
On currency markets, the fall of the dollar, which has lost 10 percent since the last bonus payday, is also putting pressure on bonuses and depressing the mood among bankers. In an effort to hold onto their cash, banks may pay senior executives more in stock.
“We feel this year, banks will use stock as a major currency to pay,” Karp said in an article published in the International Herald Tribune.
Stocks typically make up about 50 percent of pay for senior banking executives. “We feel the stock totals will be as high as 60 percent or 70 percent,” Karp said.
While banks can’t be too stingy, when it comes to money, loyalty is often quickly forgotten on Wall Street. One manager said that banks and brokerages have a difficult task to do what’s necessary to keep good employees while absorbing billions in losses.
Some bankers can be happy to still have their jobs.
Wall Street job losses have already approached 10,000 for 2007, the worst bloodletting in several years. At Bank of America alone, 3,000 people have been laid off.
The job losses and reduced bonuses have a ripple effect across the economy of New York City, where luxury shops, high-end real estate agents and top restaurants make much of their livings from the annual bonus windfalls.
New York is in some ways a “one-industry town”, Alan Johnson, managing director at Johnson & Associates, said in The New York Times.
Experts agree that the fat years are definitely over, and they predict 2007 will be a slightly bitter appetiser ahead of the real collapse.
“We’re in that ugly transition year,” Johnson said. “The last couple of years have been spectacular. This year is sideways at best, and next year will be down a lot.”
The picture will be clearer in mid-December, when banks reveal how much is available to distribute in bonuses between January and March — the period when banks and brokerage houses actually pay out bonuses.