2010/11 Wall Street Bonus Thread

Did you read the one about JPM bonus pool?

http://noir.bloomberg.com/apps/news?pid=20601087&sid=anMByCdMaemo&pos=3

Yes AvUWS - consistent with what I'm hearing around the street. Also worth noting that many firms have instituted hiring freezes, incl my firm. Not unusual to slow hiring in second half of the year, but all-out freezes speak to the current situation.

Here's some relevant intel: BoA Merrill laid of some 10-15% of investment banking last month, many in industries and M+A. I would suspect this is not the end of it.

"laid off".

What happens if even GS can't keep up the bonus payments?

Bloomberg: " Oct. 19 (Bloomberg) -- Goldman Sachs Group Inc., the U.S. bank that makes more money from trading than any of its competitors, said third-quarter profit dropped 40 percent, beating analysts’ estimates as expenses declined.

Net income fell to $1.9 billion, or $2.98 per share, in the three months ended Sept. 30 from $3.19 billion, or $5.25, a year earlier, the New York-based bank said today in a statement. The average estimate of 20 analysts surveyed by Bloomberg was $2.29 per share. Estimates ranged from $1.81 to $3.09...."

At first I thought my understanding of the financial biz in NY was all off when I read the headline that Goldman beat profit estimates by a lot. But I hadn't been keeping up and estimates were way down.

Another nugget was that trading accounted for 71% of all REVENUE in the first half. That is simply astounding. Revenue for the quarter is down 28% from last year.

Lots of articles on how little volume there is in the market these days. One recent article (in the FT I think) about how pension funds burned by the market are allocating significantly less to equities, which could be a big structural change.

How about this one re further potential losses at BoA? Really incredible:

http://www.businessinsider.com/bank-of-america-mortgage-report-2010-10

Goldman Sachs Cuts Compensation Pool to $370,706 per Employee
Share Business ExchangeTwitterFacebook| Email | Print | A A A By Christine Harper and Michael J. Moore

Oct. 19 (Bloomberg) -- Goldman Sachs Group Inc. set aside $13.1 billion for compensation and benefits in the first nine months of the year, down 21 percent from a year earlier, as revenue fell 14 percent.

The amount, equal to 43 percent of revenue, is enough to pay each of the New York-based firm’s 35,400 employees $370,706 for nine months’ work. That’s down from an average $527,192 for the firm’s 31,700 workers a year earlier.

Goldman Sachs, which set a Wall Street pay record in 2007, came under pressure last year from politicians and shareholders to reduce bonuses following the worst financial crisis since the Great Depression. The company cut its full-year ratio of compensation to revenue to 35.8 percent, the lowest since the company went public in 1999.

“They recognize that the world has changed,” said Brad Hintz at Sanford C. Bernstein & Co., who was named the top analyst covering brokerage firms in a survey of fund managers by Institutional Investor magazine this year. “The only way to improve your return on assets is to control compensation.”

Wall Street firms typically reserve a portion of revenue throughout the year to pay employees, with most of the money awarded in the form of year-end bonuses. Goldman Sachs reserved $3.83 billion for compensation in the third quarter, or 43 percent of revenue, equal to the proportion in the first half.

Last week New York-based JPMorgan Chase & Co. reported that it set aside 39 percent of its investment-bank’s revenue to pay workers in the division for the first nine months of the year, up from 38 percent a year earlier.

JPMorgan Chase

The expense at JPMorgan’s investment bank fell 10 percent to $7.88 billion from $8.79 billion. That’s equal to $298,866 for each of the unit’s 26,373 workers at the end of September, down from $353,834 on average for the division’s 24,828 employees a year earlier.

The following compares compensation at Goldman Sachs and JPMorgan’s investment bank.

Nine Months through Sept. 2010
Goldman Sachs JPM Investment Bank

Revenue $30.5 billion $20 billion

Compensation $13.1 billion $7.88 billion

Comp/Revenue Ratio 43 percent 39 percent

Employees 35,400 26,373

Average Comp/Employee $370,706 $298,866
To contact the reporters on this story: Christine Harper in New York at charper@bloomberg.net; Michael J. Moore in New York at mmoore55@bloomberg.net.

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net.

Last Updated: October 19, 2010 09:48 EDT

The slim down bonus will apply to hedge funds as well since returns have been volatile and mediocre for most of the firms. Many are still under high watermark.

So IB comp is down 15-30% YoY YTD. It was flat to slightly up Q1 and Q2. So if Q3 trends continue for Q4 then comp will be down 30-40% YoY for the year.

Well may I point out that given all the potential put backs of fraudulent loans securitized by the big banks a 'moratorium' on bonuses for all bankers until they calculate what is really really on their balance sheet may be in order. -shrug- but our politicians are too busy trying to keep their 'jobs'.

What is IB ?

incentive based compensation?

Investment banking

sledgehammer: "IB" is just an abbreviation for Investment Banking. Here, I think the person was just using IB as short for "the investment banking industry" or possibly a firm's "investment banking department."

so till now bonuses at GS down 30%, JMP down 15%... what % of employees paid in bonuses do these 2 represent? together # 62k employees... but not all of them receive bonuses

wonder what's the most relevant measure when it comes to bonuses effects on RE in Manhattan/NYC. # of employees that received a bonus of $100k or more? the median bonus? the distribution sure changes when the pool decreases by as much as 30% (GS case), remaining high with the starts but most mediocre employees receiving the bulk of the cut?

any comments? one of the relevant parameters is that the expectation for bonuses going forward is low, no improvement ahead while volumes and overall activity remains subdued.

Where's steveF?

Actually another significant nugget in all this is that the number of employees at GS is up over 10%. That should still support the lower priced apartments regardless that they didn't make what they had last year.

So, do they fire more to keep the average up? Or does the average for all banks now drop since they don't have to compete as much with GS?

Anytime IB comp is down that much it means layoffs are coming in the next 3-12 months unless business picks up materially.

Where's Ericho? Maybe a down bonus year is a good thing for LIC.

Do you believe any of the developers with new construction apartments on line or in the pipeline will break rank and try get inventory down? Especially, if the NYC job market gets any nastier.

all speculation until Dec or early next year. What I have read and looking to push within my firm is to have the bonus paid out in December instead of early 2011, if tax rates rise next year. But if bonus does drop double digits, my guess all levels of manhattan RE will be impacted. Keep in mind IBs now pay a big chuck of their bonuses in restricted stock. Can't buy a co-op or condo with unvested benefit.

Yep - still a big chunk paid in stock. On the bright side, all the LEH stock that was paid out in 2006 finally vests in January!!!

CONVERSELY, dummies, those who got restricted stock or better yet OPTIONS in Dec 2008-March 2009, and whose shares will vest in the next few months will be able to sell said shares for 100%-300% more than the grant/strike price. That is a shit-ton more money across the Street than what they would have gotten had they gotten the same amount in cash, and overwhelms the declines from grants dated the same period a year later.

Dummies. Its not so bearish yet.

jason - hold onto the dream that one year's comp is going straight to the Manhattan real estate market!! My guess is any gains from stock given in a [lackluster] bonus year will be applied to the gaping hole in bankers' net worths left by the crisis. But brokers can dream, I suppose.

Trust me, we'll see jason's same argument next year and the year after:

"But but... what about all the stock that bankers got in January 2009 that's vesting now??" That'll move the needle!!

hofo, even if tax rates go up or down, if you're paid in 2011 for a 2010 bonus, it's taxable in 2010 even though you don't have it yet.

Sorry.

You are a fucktard. I am a renter and bear. Which everyone else on this board knows. I am also pragmatic and have stock from march 2009 worth a shit ton.

Jason - sorry to offend your bearish renter sensibilities, seemed like a brokerish comment.

I too have stock from Q1 09, as do many colleagues of mine. What I can tell you is that any elation from the stock run-up is tempered by (i) their efforts to rebuild their net worths and (ii) the outlook, which is shittÝ.

"hofo, even if tax rates go up or down, if you're paid in 2011 for a 2010 bonus, it's taxable in 2010 even though you don't have it yet.

Sorry."

Is anyone else as impressed as I am by steve's ability to say this with such conviction while being so wrong?

Steve - you mean my W2 has been wrong all these years?

Seldom right, never in doubt

steve just did it again. Wow. He does this with amazing frequency- make a completely incorrect statement in an obnoxious way. I'm sure now he will try to make up all sorts of reasons why he is not really wrong, or that he didn't say what we all just read.

steve's got that 2%/day return rolling in so he can say anything to you idiots

stevejhx
"hofo, even if tax rates go up or down, if you're paid in 2011 for a 2010 bonus, it's taxable in 2010 even though you don't have it yet.

Sorry."

And the scary part is, steve claims he was an accountant at some point. wow. you might want to alert your clients to be ready for their audits.

I assume those stock options only vest if you are still employed at said bank. Does that include getting canned as well as voluntary departures?

This isn't going to help. MS revenue down 20%.

http://www.marketwatch.com/story/morgan-stanley-posts-67-drop-in-profit-2010-10-20?reflink=MW_news_stmp

I know that this is probably old news to those of you who live it in the business, but the rest of us only really learn what is happening from new reports.

OTOH, if you want to know what is happening in the manufacturing and food/grocery world, just ask me.

WF profits up. REvenues down, but they are making a profit by slashing jobs (3,800 in July) and closing branches.

Maybe it was wrong to build all those bank branches not just on every major intersection but also on every other corner in between. Though I think we do benefit from having a Time Warner office on 96th and B'way rather than a WaMu, though you have to go to '70s movies to see what Fowad looked like on that corner.

Soon I will actually have to cross a street to use the ATM.

One other factor to consider is that all of the banks hired earlier this year, So the smaller bonus pool is spread even thinner over more heads, unless of course heads roll...

CS out with 74% drop in profit. Drops in trading and IB as well.

Here's what we know about staff compensation provisions in the first 9 months of 2010, after Credit Suisse, Goldman, JPMorgan and Morgan Stanley have released their Q3 earnings.

Credit Suisse Investment Bank

Investment banking pay down 20% from Jan - Sept 09

Revenues - $13.2bn

Provision for Compensation - $6.4bn

Comp / Revenue ratio - 49%

Employees - 21,200

2010 Average Comp per Employee - $304,277

Goldman Sachs

Pay down 30% on 2009 so far

Revenues - $30.5bn

Provision for Compensation - $13.1bn

Comp / Revenue ratio - 43%

Employees - 35,400

2010 Average Comp per Employee - $370,706

JPMorgan Investment Bank

Pay down 31% on 2009 so far

Revenues - $20bn

Provision for Compensation - $7.88bn

Comp / Revenue ratio - 39%

Employees - 26,373

2010 Average Comp per Employee - $298,866

Morgan Stanley

Investment banking pay down 8% on 2009 so far

Revenues - $23.8bn

Provision for Compensation - $12bn

Comp / Revenue ratio - 50%

Total Employees - 62,894

2010 Average Comp per Employee - $190,681

Source - Bloomberg

Here's what we know about staff compensation provisions in the first 9 months of 2010, after Credit Suisse, Goldman, JPMorgan and Morgan Stanley have released their Q3 earnings.

Credit Suisse Investment Bank

Investment banking pay down 20% from Jan - Sept 09

Revenues - $13.2bn

Provision for Compensation - $6.4bn

Comp / Revenue ratio - 49%

Employees - 21,200

2010 Average Comp per Employee - $304,277

Goldman Sachs

Pay down 30% on 2009 so far

Revenues - $30.5bn

Provision for Compensation - $13.1bn

Comp / Revenue ratio - 43%

Employees - 35,400

2010 Average Comp per Employee - $370,706

JPMorgan Investment Bank

Pay down 31% on 2009 so far

Revenues - $20bn

Provision for Compensation - $7.88bn

Comp / Revenue ratio - 39%

Employees - 26,373

2010 Average Comp per Employee - $298,866

Morgan Stanley

Investment banking pay down 8% on 2009 so far

Revenues - $23.8bn

Provision for Compensation - $12bn

Comp / Revenue ratio - 50%

Total Employees - 62,894

2010 Average Comp per Employee - $190,681

Source - Bloomberg

> So IB comp is down 15-30% YoY YTD

off of a not so great year in the first place.

> or better yet OPTIONS in Dec 2008-March 2009,

yes, them and the bankers who were paid in kugerand will save us!

Recruiters I speak to are now talking about a dismal bonus year across the board...

First of all it is hard to geralize across the board what every employee is going to get paid. Some depts within these firms will be up 20-30% and some other depts will be down 20-30%. I know at my IB they have not paid well for 2 years and have said they have lost some much talent to hedge funds that they will pay better this year. We can only wait and hope. Ask us again in Feb and we will tell you how we did!

"First of all it is hard to geralize across the board"

actually, it's easy to generalize, hard to be specific. what can be safely said is that total bonus pools are down significantly Y-o-Y

The rumours that Deutsche Bank's corporate and investment banking unit is mulling over job cuts just won't go away.

"Dealbreaker reported that it was hearing noises of a possible 5% cull a couple of weeks back, and now The New York Post has said that its own source 'familiar with the bank's thinking' has indicated that job losses of up to 10% are being considered over at the unit, where the bank has around 15,850 employees (excluding many support staff who often work in central functions).

The newspaper reports that Deutsche CIB is currently undergoing its normal fourth-quarter review of staff - after which up to 5% of staff can be let go for performance reasons - but this year the difficult trading environment means that a much deeper cull is likely."

Source; hereisthecity.com

[from http://online.wsj.com/article/SB10001424052702304023804575566353602302296.html?KEYWORDS=wall+street+employment+new+york]

OCTOBER 21, 2010, 3:24 P.M. ET

Investment Bank, Securities Dealing Job Count Sinks Again

By BRETT PHILBIN

NEW YORK—The number of professionals in the investment banking and securities dealing sector plunged by more than one-fifth in both New York City and New York state in September from a year earlier in a sign of the tough times experienced by Wall Street firms.

The state of New York reported 485,000 professionals in finance and insurance, down 1% from 490,000 a year ago, according to data from the New York State Department of Labor. Employment on Wall Street, which is classified under the securities, commodities contracts and other financial investments and related activities category in New York City, dropped to 160,200, off 1.7% from a year earlier.

While the financial-activities category, which the Labor Department groups with real estate, didn't come close to reaching the 33,000 job losses in the government sector, those who work in investment banking and securities are feeling the pain of a slowdown in client activity and trading that began late last spring.

Headcount for the investment banking and securities dealing sector fell 23% in New York City to 32,300 and dropped 25% to 33,500 in New York State.

The securities brokerage category, which includes financial advisers, again experienced declines, falling 17% in the state and 15% in the city.

The number of employees in the investment banking and securities dealing sector in the city has fallen at least 20% from the year-earlier period for eight straight months, while the securities brokerage sector has reported at least 10% fewer employees since December 2007.

In overall employment trends, New York state shed 15,600 private-sector jobs in September, or 0.2%, while the nonfarm job count fell by 37,000. The state's unemployment rate remained unchanged at 8.3%, on a seasonally adjusted basis.

Excelsior!

W67th gets a no-prize.

"An investment banking horror, from UBS"

http://ftalphaville.ft.com/blog/2010/10/26/383171/an-investment-banking-horror-from-ubs/

"- Underlying 50% miss vs consensus: Focusing on pre-tax profit, and stripping out all of the non-recurring items, we come up with a group figure of CH 986 million which is 48% below consensus forecast of CHF 1,888 million. The roughly CHF 900 million miss comes from the investment bank (CHF 600 million miss), the corporate centre (CHF 200 million miss) and wealth management (CHF 100 million miss). We don’t see upgrades on the back of these figures."

Excelsior!

Layoffs at CS. :(

http://dealbreaker.com/2010/10/layoffs-watch-10-credit-suisse/#more-30048

so there's no need for whitney to be right on the 80k layoffs coming from Wall Street, the cap on bonuses affect these high earners ability to pay their mortgages already

--------------------------------------------------------------
http://www.ft.com/cms/s/0/a3eded6c-e133-11df-90b7-00144feabdc0.html
UBS wants watchdog to waive $1m cap on cash bonuses

The Swiss banking group wants to pay out more cash to top earners, most of whom work in London, New York, and other places with relatively high rates of personal income tax, say people familiar with the situation.

Under the bank’s existing pay structure agreed last year with Finma, Switzerland’s financial regulator, the cash component of bonuses is limited to $1m, with the remainder paid out in deferred cash and share awards that vest over several years.

Those restrictions can make it difficult for top earners accustomed to big cash bonuses to meet fixed obligations such as mortgage payments and school fees, one senior UBS banker told the Financial Times.

Cry me a river...

check this out
http://tinyurl.com/29qcfu7

Deutsche Bk Hit By EUR1.2B 3Q Net Loss On Postbank

DB will set aside an average $394k/employee, more than GS's $370k. (The DB total is down slightly, in Euros, from last year 296k vs. 285k. Probably up in $'s)

Which means DB now pays more than GS? which of these is unsustainable?

http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=aXvVWQB1FOpU

well, if DB only has 4 employees when they give out bonuses....

Oh - so that's how DB's per capita bonus went up... a weaker dollar!

Lazard and Evercore announced good quarters today.

"The firm’s results underscore a steady, if sometimes tepid, recovery in the world of mergers, as corporate boardrooms again gain the confidence to strike deals. Because of its main business of advising on mergers, Lazard is often seen as a bellwether of the deal economy."

Yes, but they only employ like 2,700 employees, so only about 10-20% the size of the other IB's. Practically a boutique.

Meantime Man Group announces layoffs of 200 (out of 1,800). Larger than expected.

http://online.wsj.com/article/SB10001424052702303443904575578291721591372.html

Where's Malraux? I want to find out when the big Damien Hirst run is going to start again.

Cravath bonus schedule out: No increase from last year.

"Yes, but they only employ like 2,700 employees, so only about 10-20% the size of the other IB's. Practically a boutique."

Yeah, Lazard is a fraction of a bank.

This just in - Europe to impose massively draconian bonus restrictions on all banks HQd in EU, INCLUDING THEIR EMPLOYEES IN OTHER REGIONS! Not good for Wall Street. In fact, horrible for Wall Street.

European pay rules set to hit US groups

By Megan Murphy in London

Wall Street bankers will be caught by tough new European rules on pay and bonuses, after regulators refused to exempt executives who have senior responsibilities in London and other European financial centres.

The Committee of European Banking Supervisors, the umbrella body for bank regulation across the European Union, on Friday published its final guidelines on remuneration across the 27-nation bloc.

While bankers had hoped that the CEBS would soften some of its more controversial proposals, the final text was – as widely trailed – little changed from the draft proposals circulated in October.

Cash bonuses at banks operating in the EU will be capped at as little as 20 per cent of total pay as large institutions are required to defer as much as 60 per cent of top bankers’ bonuses over three to five years and impose a separate “retention period” on all share-based incentives.

Worryingly for US and Asian banks such as Goldman Sachs, JPMorgan and Nomura, the CEBS also confirmed that the rules would apply to some of their senior executives who are based outside the EU, but who still wield significant management responsibilities in Europe.

The CEBS guidelines are the toughest restrictions on pay and bonuses to be introduced since the financial crisis, far outpacing what has been implemented on Wall Street and in other financial centres and sparking concerns that the competitiveness of Europe’s vast banking sector will be badly damaged.

The British Bankers’ Association said the rules, which will come into effect in January, would “dramatically” alter the landscape for bonuses.

“Taken together, these rules mean that for the key people, whatever is paid in bonus is half in shares, mostly locked away for several years, and any cash will go straight to the tax man,” it said.

“This represents a huge change away from the bonus arrangements of the past.”

For banks based in the EU, such as Barclays, Royal Bank of Scotland and Deutsche Bank, the guidelines will apply to their worldwide staff, rather than just those working in European financial centres.

Non EU-based banks, by contrast, had assumed that only staff based in Europe would be caught by the rules.

The CEBS made few concessions to big banks in the final guidelines in response to industry lobbying, experts said.

Controversial “guaranteed” bonuses, for example, will be limited to new recruits and cannot be used to retain top performers, while bankers will be forced to retain share-based incentives for a set period of time before cashing them in.

Lawyers and accountants have warned that those requirements could see some bankers hit with a large unfunded tax bill on share awards when they are granted, even if they are barred from selling for several years.

This will probably have two effects that I can see. First is that it more talent will move to non-EU HQ'd banks. But my guess is that it will also act, from an employees perspective, as if there is less demand for such high-priced employment. The high salaries/payroll were there for two reasons because the money was there AND because the banks felt they had to pay up in order to attract that talent. If they don't have to pay as much because there is less demand for the talent (since the EU banks can't compete) won't that mean salaries will have less pressure to be so high?

Long term it probably doesn't have as much of an effect. If there is still money to be had in that business it will just get done by US and Asian banks, not EU banks. But such shifts will take time.

"Lawyers and accountants have warned that those requirements could see some bankers hit with a large unfunded tax bill on share awards when they are granted, even if they are barred from selling for several years."

HOW DO YOU LIKE THAT! Exactly what I said: bonuses are payable when they're granted, not when they're paid.

LICCdope! Where are you?

> For banks based in the EU, such as Barclays, Royal Bank of Scotland and Deutsche Bank, the guidelines will apply to their worldwide staff, rather than just those working in European financial centres.

well done EU! it was about time, enough with privatizing earnings while socializing losses. the next thing to do is to make sure that creditors at all seniority levels take a huge hit in case of a sovereign default (and of course, also when they are creditors of banks). they should pay for their complacency.

This will shred comp at all IBs due to reduced competition.

NYC10013 - While I think that much of the comp on Wall Street is rapacious exploits of a broken system (Heads I win, tails taxpayers lose) I figure compensation will not be "shredded" because of a different change in the system, the switch to public ownership of these IB's from partnerships. So long as there are revenues and margins made in these companies, the executives will make sure employees will take most of it home. There are no partners whose interest is to keep costs as low as possible (so they can pocket the rest). Instead there is a diverse and diffuse public ownership who can and might sell the stock.

F
L
M
A
O
Z
Z
Z
Z hahjajjaaaaaaaaaaaa. I'm gonna pee. Yep, I guess all the lemmings who over-strategized to beat the bankers bf bonus payouts in april..... Just fked themselves. Sweet sweet lemonade. Oh Lordy, i hope the 50bp savings on 30 yrs was worth it. Hhaaaaaaa

Crain's article today on Goldman...

"bonuses across Wall Street are expected to decline. Compensation for trading and investment-banking employees is likely to be down 22% to 28% from last year, according to Options Group, an executive search and compensation consultant firm in New York. Morgan Stanley has told some employees to expect investment-banking bonuses to decline 10% to 30%, two people briefed on the matter said earlier this month."

Bullish!!!! [until you read the fine print...]

"Wall Street Bonuses May Top Last Year as Profits Soar"

http://www.nytimes.com/reuters/2010/12/15/business/business-us-newyorkcity-bonuses.html?_r=1&nl=business&emc=dlbka24

maybe the EU banks will start doing what they should have, pay people a large salary. this way the bonus is not such a huge deal (100-1000% of salary as they were before).

> "Wall Street Bonuses May Top Last Year as Profits Soar"

The ironic part is that profits for the banks have increased in part BECAUSE THEY ARE PAYING EMPLOYEES LESS. ;-)

The reporter clearly doesn't understand how things work. What kept bonuses high when profits sucked - tying to REVENUE, not profit - is coming back around to smack the bonuses now.

Folks with actual view of compensation seem to all be clearly noting down, including the ones in the article.

#s yet to come out, but expectations from virtually all of my banker compatriots is down, ranges of 10-25%

Wall Streeters have been worried about the tax expiration, but that worry is now over. That has truly been a bigger worry for high earners and those with significant assets and capital gains than volatility in earnings this year.

Right. Because none of the IB and S&T guys at the European banks are worried about the recent changes in bonus structure mandated by the EU. None of them. And none of them are worried about LT impact on bonuses.

"This Bonus Season on Wall Street, Many See Zeros"

http://www.nytimes.com/2010/12/20/business/20bonus.html?_r=1&ref=business

What percent of that zero do you think will go toward downpayments?

In some ways, a zero bonus should not come as a surprise to many bankers. As a result of the 2008 financial crisis, Wall Street firms like Goldman Sachs and banks like Citigroup raised base pay substantially in 2009 and 2010.

Riversider - even with increases base pay is NOWHERE near all-in comp levels and doesn't come close to compensating for a crappy bonus.

I'm more worried about how this affects NYC finances. Bonuses get taxed and the loss in revenue will either need to be made up or services cut.

I think others miss the psychological impact of higher salaries on management. When most of the salary was bonus, your line item for salaries was fairly low. Sure you knew it would be higher come bonus time, but the firm always came through with compensation set aside for bonuses. Management could always look at the salary number and assuage themselves that in bad years they just didn't need to come up with as much bonus. Now that is no longer an option.

Now if management needs to reduce comp they no longer have the option of reducing bonuses, only reducing headcount.

Riversider--if money is shifting away from bonuses and into profits, I think NYC probably ends up better off as the city tax rate on corporate income is higher than the city tax rates on personal income.

jordyn,
Probably depends on the comp range. If we're talking high six figures low sevens I can't see the salary being raised enough to compensate for the lower bonus.

Sorry Riversider, but I can't see how your point relates to mine at all.

Jordyn - I guess I should know this, but don't most of the banks have significant loss carryforwards, or have those already been carried back? Would think that that could add more budgetary pain if comp is lower.

I'm not really sure, but even if it were the case it would still be better to be offsetting that loss to capture more future taxes at ~7% than to pay more in bonuses that get taxed today at ~3.5%.

Corporations have a LOT more leeway in how they report and what they can do with profits than individuals. Google paid the equivalent of 2% tax on profits because they have options individuals don't. If the city wants the tax revenue it is MUCH easier to go after individual income than corporate profits.

Not to mention the fact that corporations have two sets of books, for reporting purposes and for tax purposes. In theory over time they should come out the same, but a corporation can report its costs in one tax region and its income in another. Individuals don't have the same option, particularly in NYC.

Meredith Whitney is losing what ever credibility she had with her muni default prediction

http://www.bloomberg.com/news/2010-12-22/meredith-whitney-overreaches-in-muni-default-call-commentary-by-joe-mysak.html

Whitney doesn’t believe the states will default. That leaves us with local governments and authorities as the ones failing to pay debt service on their bonds, which makes this an even bolder call.

Most defaults in the modern era aren’t governmental or what we might call municipal at all. The majority are corporate or nonprofit borrowings in the guise of some municipal conduit -- nursing homes, housing developments, biofuel refineries -- so they could qualify for tax-free financing.

Whitney’s Vision

And those are the ones I think will still comprise the majority of defaults in 2011.

This isn’t the Whitney scenario. No, she envisions between 50 and 100 -- or more -- counties, cities and towns making the choice to renege on their bonded debt.

My question is: Why?

Why would a governmental entity go out of its way to provoke or alienate its best source of finance? In the old days you might say that bondholders were a distant class of banks and plutocrats mainly centered in the Northeast. That’s no longer true, and hasn’t been since at least the passage of the Tax Reform Act of 1986, which made bonds less attractive for banks and insurance companies, among other things. Today, a city’s bondholders might live in the municipality itself, and almost certainly reside within the state.

Debt Service

Why would a governmental entity choose to default on its bonds, especially if they make up a relatively small proportion of its costs?

“Debt levels for U.S. local and state governments are relatively low, with annual debt service representing a relatively small part of budgets,” Fitch Ratings said in a special report in November.

Entitled “U.S. State and Local Government Bond Credit Quality: More Sparks Than Fire,” the report said, “The tax- supported debt of an average state is equal to just 3 percent - 4 percent of personal income, and local debt roughly 3 percent - 5 percent of property value. Debt service is generally less than 10 percent of a state or local government’s budget, and in many cases much less.”

The lead analyst on the report was Richard Raphael, who has been covering municipal finance for 31 years. He is not one of the analysts “who got everything wrong in the housing collapse,” in the words of correspondent Kroft. In his report, Raphael said, “debt service is a relatively small part of most budgets, so not paying it does not do much to solve fiscal problems (particularly as compared to the costs of such an action).”

Headline Grabber

What irks me about this Whitney call is that it generalizes about a market that resists generalization, a market that is particular and specific to a remarkable degree. And it doesn’t answer the question “Why?” It is instead an assertion aimed at getting attention.

Cash portion of bonuses cut for Credit Suisse - hard to make that down payment with just $50K (pre-tax)

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=atfRHZD7W9uA

Credit Suisse Says More Employee Bonuses Are Deferred (Update1) 2011-01-10 08:28:43.464 GMT

(Updates with compensation program from second paragraph.)

By Warren Giles
Jan. 10 (Bloomberg) -- Credit Suisse Group AG, Switzerland’s second-biggest bank, boosted the number of employees receiving deferred bonuses in a bid to increase transparency.
The threshold for deferred compensation was cut to 50,000 Swiss francs ($51,900) for 2010 awards from 125,000 francs, the Zurich-based bank said today in an e-mailed statement. The deferral rate rose to a range of 35 percent to 70 percent, lowering the cash portion of bonuses, Credit Suisse said.
“These changes were designed to ensure adequate consideration of risk in compensation decisions and to better align the interests of employees with the long-term success of the bank,” the bank said in the statement.
Bankers’ pay should be more transparent to investors to prevent lenders from hiding policies that encourage irresponsible risk taking, regulators at the Basel Committee on Banking Supervision’s task force on remuneration said last month in draft proposals. Regulators are pushing banks to link compensation with long-term performance after annual cash bonuses were blamed for contributing to the financial crisis.
Shares awarded as part of 2010 compensation will vest and be delivered over four years from 2012, Credit Suisse said.
Payouts for members of the executive board, managing directors and directors will be split between shares and cash-based awards linked to the bank’s return on equity and the performance of particular divisions.
Employees below the level of director will receive deferred bonuses entirely in shares, the bank said.
...

Yes you're right the cash component of this year is going to be lower, but rememeber that people are getting previous year differed compensations. 2009 was great year for wall street and 2010 is decent...

aboutwallstreet, the key phrases here are "threshold for deferred compensation was cut", "deferral rate rose to a range of 35 percent to 70 percent, lowering the cash portion of bonuses" ...as in RELATIVE TO LAST YEAR. Remember that bonuses are also lower in general, which means a double hit. The vesting schedule and claw-backs will mean less mobility which result in slower income growth. The overall mood and confidence associated with bonus will take a hit. Who knows what they will do NEXT YEAR! Lower the threshold even more? Vest in five years instead of four? No vesting in the first two years at all?...

http://dealbreaker.com/2011/01/bonus-watch-11-morgan-stanley/#more-33983

Dealbreaker says JPM down 10-20% in ibanking, depending upon level.

Those numbers are not bad. Lower cash components might still slow the spending sprees, but this isn't exactly the end of Wall Street or even a retracement of more than a few years of the boom.

“We expect full year comp expense to be accrued at 40.4% of revenues, the second lowest level since Goldman has been a public firm, reflective of both mgmt discipline and the impact of new hires over the past year.”

Spoke to a friend at MS. He manages a team of 10 people. Two are getting a bonus, 75% smaller than last year. Ouch.

"Spoke to a friend at MS. He manages a team of 10 people. Two are getting a bonus, 75% smaller than last year. Ouch."

Yes but their base was 100% bigger.

so...base goes from 200K to 400K. bonus goes from 1 million to 250 K. Heck of a job, brownie.