By Justin Baer
Wall Street pay will rise slightly this year, though the
increase will be offset at some banks by huge legal settlements
agreed to this year, an industry recruiter said in a new study to
be released later this month.
"This is the year those legal costs come home to roost," said
Michael Karp, a managing partner with Options Group, which is
publishing the study.
Total compensation for traders, investment bankers and wealth
managers will rise 4% in 2014, matching last year's gain, according
to the study by Options Group. But big legal penalties should
temper payouts at some banks and put the final figures closer to
flat.
Financial firms such as Bank of America Corp., BNP Paribas SA,
Citigroup Inc. and Morgan Stanley have announced agreements this
year to pay more than $1 billion to settle various allegations from
regulators or law-enforcement officials.
Options Group didn't factor in such legal costs in its 4%
industrywide forecast for this year's pay, though the recruiter did
acknowledge that the regulatory fines and settlements "will
negatively impact bonus pools."
"Banks have faced an increasing number of fines related to
behavior that contributed to the financial crisis," Options Group
wrote. "Some banks will be tapping into bonus pools to pay for
these legal costs."
Investment bankers are expected to be pay winners during bonus
season. Their total pay should rise 9% from a year earlier, their
biggest increase since 2009, as the market for mergers, stock sales
and other deals heats up. Overall, trader compensation is expected
to be little changed from 2013; fixed-income, currencies and
commodities employees should see a 1% decline, while stock traders
may earn 1% more, Options Group predicted.
The findings were based in part on how banks performed during
the first nine months of 2014, and also factored in the results of
a survey from more than 5,000 Wall Street employees. Of course,
there's a bit more than a month for bankers to close deals and
traders to win or lose on some of their remaining positions. That
could push the final pay numbers up or down.
Within each of these businesses, only one--securitized
products--is expected to hand out double-digit raises, Options
Group said. That business had been hard hit during the crisis, but
is now recovering.
Banks' wealth-management employees expect to earn 7% more this
year than last year, as the business of managing wealthy
individuals' money remained on its steady climb.
While total Wall Street pay may show modest gains this year,
compensation may vary markedly from bank to the bank, and from one
business to the next, Options Group said. Not all of the biggest
financials firms faced multibillion-dollar legal settlements this
year.
The new pay data come as a spate of new rules on bank capital
and risk-taking has forced each of the largest firms to define its
core strengths--as well as activities it simply can't sustain.
Those choices--and the diverging path banks' individual businesses
are on--are now reflected in what they're willing to pay employees,
the recruiter said.
"Many banks are near completion of their multiyear restructuring
plans, shedding noncore operations, addressing a variety of legal
issues, streamlining operations and creating a whole new approach
to preserving profitability," Options Group executives wrote in
their report. "These issues have also forced many banks to make
difficult choices that arguably should have been made years
ago."
Another recent study on Wall Street pay predicted this year's
bonuses would vary more greatly from business to business. Johnson
Associates, a compensation-consulting firm, said last week that
investment bankers' year-end payouts could jump by as much as 15%,
with traders' bonuses falling by up to 10%.
According to the Options Group report, banks shed 30%-40% of
their sales and trading workforce between 2010 and 2013. Revenue
fell by less than 20% during the period, making those employees who
remain more productive, the firm said.
The largest banks set aside on average about 40% of their
revenue from trading, investment-banking and treasury services for
employee pay during the first nine months of 2014, down about 1
percentage point from the same period a year ago, according to
Options Group research.
Write to Justin Baer at justin.baer@wsj.com
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