Will Bonuses Lead To January Feeding Frenzy?

30, I think with contracts signed in the last two months looking close to normal and perhaps will be above normal next couple of months due to dead time in March-June, it will take some time for Resales inventory buildup to clear - as in market pulse over min 35 percent. I can clearly see sales picking up as we get closer to vaccine and new therapeutics which may coincide with bonus period.

My own feeling is it might cause an uptick in second home purchases.

Or tradeups (which are ultimately net zero in terms of avaialble inventory). Any number of junior bankers who may be looking to ditch their starter apartment and get a 2br so they have have a separate wfh space.

Upgrade to larger apartments is certainly possible.

We will certainly see short term effect of the crazy money printing, but this time it is really a dead cat bounce, the world is largely different now than 12 years ago.

I don’t think its a widespread positive story for bonus dollars.

Funds will probably mostly pay if they had good years.
Banks will use the recession or underperformance in some areas to pay selectively and conservatively.
A number of them are still in cost cut mode.

Reduced tech funding/IPOs so not the same cash flow to tech founders.
Private equity & VC not exactly having outsize performance years.

From my recent conversations with bankers, they are almost all expecting broad layoffs

@yournamehere
That is much closer to reality than the rosy predictions above our posts.

When banks take huge loan losses on commercial and consumer credit, they don’t just pay out huge bonuses to other departments because they had a pretty good year trading.

It is also not unusual to report OK-ish Q2, Q3 and then a horrific Q4 as they adjust their loan loss reserves and other write offs for their end of year earnings report. It’s especially a great time to do it because you can point to your performers and say “sorry we can’t pay you.. look at our earnings”.

Investment banking has been in layoff & cost cut mode for the past 10 years, and this will continue going forward. Bonuses will suck and layoffs will continue. And no banks are hiring. So they know they can pay crap bonuses, because where are you going to go?

The layoffs and cost cuts are driven by a trend where investors are pouring money into PASSIVELY managed, LOW COST funds like ETFs that use algorithms to keep fees extremely low. In the past, investors would be buying high-cost, ACTIVELY managed funds (mutual funds, hedge funds, etc) that employ an army of highly paid stock pickers.

This a structural, permanent change. The 'active to passive' trend is creating downward economic pressure on banking bonuses.

I started working on wall street in 2009 for a bulge bracket bank in NYC. Bonuses are way down during that time. Today's average managing director will make much less than in the past. And today's juniors have zero job security with limited opportunities for career advancement.

Not sure what active vs passive has to do with investment banking bonuses. GS reported 3Q IB revenue that was up 7% from last year.

Does life suck at asset manager dinosaurs these days? Absolutely. But I wouldn't bet against financial services as a whole finding ways to make money. The industry will evolve like any other.

Tom's prediction reminds me of people saying Volker would be the death of Wall Street. Spoiler: it wasn't. Like prop desks, proprietary mutual funds were never a big contributor to the bottom line and won't be missed. The folks let go in this transition will spin off their own hedge funds (like they did after Volker) and probably take home more than ever.

The main losers will be traditional fund managers that don't have a diversified banking enterprise to fall back on: American, PIMCO, Janus, Templeton, and such. But those companies aren't clustered in NYC like the banks are.

Meanwhile, ETFs are a big revenue driver for the Street's delta-1 equities desks; after all, market makers get their slice regardless of the investor's portfolio strategy. Volatility and volume are up. Lower risk-free rates = bigger spreads on FICC products. Incomes in the top 1% and beyond continue to accelerate upward, fueling demand for HNW asset management and associated grift. IB probably peaked a year or two ago but remains extremely profitable. Balance sheets are way more solid than they were at this point in the last major cycle.

It's true that tech continues to let firms do more with less, but for people not at risk of automation, the pie is bigger than ever.