European investment bankers hoping for healthier bonuses this year may be facing disappointment.
"The bonus pools in most investment-banking businesses are flat, and expectations in some areas are well ahead of where the numbers will actually come out," said Aidan Kennedy, a partner at London-based executive recruiters Armstrong International, which has conducted a new survey on 2004 bonus levels.
Banks traditionally tell employees how much they will be paid in bonuses from December through February.
Last year's bonuses were far below levels reached in 2000, when many bankers saw the highest bonuses of their careers, but they were better than in 2001 and 2002, when weak markets and a grim outlook depressed payouts.
While overall bonus pools are flat across most business areas, the Armstrong survey found that the best-performing interest-rate and equity-derivatives traders, bankers selling equities and debt products to hedge funds, and those in leveraged finance will see bonuses rise by as much as 20%.
These areas are getting a boost because of rising demand for their products and because there are several banks in the market looking to poach talent from better-established rivals, the study found.
Armstrong said the highest-paid credit derivatives traders can expect bonuses of $3 million, or about €2.3 million, or more this year, while top interest-rate traders could fetch at least $6 million as an incentive to move to a competitor.
Capital-markets businesses such as debt and stock trading will fare the worst, with bonuses falling by as much as 20% from 2003 levels, the Armstrong study found. Bankers expect a decline because revenue is down from 2003, and business pipelines are weak in terms of issuance for 2005, the survey found.
Bankers won't be starving. Max Roberts, partner with Hanover Search, a London-based recruitment agency, said managing directors could still easily see seven-figure bonuses this year. Armstrong said top-performing managing directors in mergers and acquisitions should see bonuses of between $1.5 million and $2 million.
There will be a tendency this year to pay bankers based on individual performance, rather than to reward or penalize a whole team based on its performance, building on a trend the study first found last year. Mr. Kennedy said it is most pronounced at U.S. banks. Armstrong's report included data from six U.S. banks operating in Europe and five European banks.
That the bonuses in many business lines are likely to be flat or up slightly might come as a shock to some. For instance, bankers who participated in the Armstrong survey at vice president and director levels in mergers and acquisitions said they expected 40% increases in their bonuses.
Since January, the Dow Jones Stoxx 600 Index, which tracks Europe's 600 largest listed companies, has risen 6% to about 246 points from 232. Investor confidence has declined sharply since the beginning of the year, with the J.P. Morgan Fleming Investor Confidence Index falling to 70 points in September from 92 in January.
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