Differentiation has been a watchword for banking bonuses ever since 2008, when it became apparent that getting a multiple of your salary just for surfing a good year wasn't going to be such a frequent occurrence in future. In 2019, however, people are starting to warn that bonuses aren't just going to vary a bit. They're going to vary hugely. And the really big differences are going to be between banks.
"People are already starting to float numbers around and there is massive divergence between the places that are having good years and the places that aren't," says one macro markets insider. "In some places, bonuses are going to be a total disaster. In others, it's looking great."
If you work on a macro desk at Morgan Stanley you might be particularly twitchy about your 'number'. Last week Morgan Stanley fired up to four traders after it made a loss of up to $140m on mismarked trades related to the Turkish lira. Coming this close to decisions about the size of the bonus pool, the revelation of a $140m loss is not a good look and naysayers suggest the bank will pounce upon it as an excuse to pay less. Predictably, Morgan Stanley isn't commenting, but optimistic insiders point to suggestions that at least some of the loss was booked in the third quarter when revenues rose 26% year-on-year, and that $140m was only 3% of fixed income currency and commodities (FICC) revenues at Morgan Stanley in the first nine months.
It's not just Morgan Stanley though: Deutsche's macro business also stumbled in Q3 and although the bank suggests it's resolving this under new management and making headway in Q4, it's not clear the extent to which this will compensate for a nearly 8% fall in FICC revenues year-on-year in the first nine months.
Other banks, however, are doing well. The chart below from research firm Tricumen indicates which banks outperformed in terms of revenue growth in the first nine months of 2019 versus the same period a year earlier. In macro trading, Tricumen suggests you want to be working for Credit Suisse this year. The same applies to equities trading, although Credit Suisse's M&A bankers will be lucky to get anything and fortunate to get away with their jobs. Performing well may be no guarantee of a big bonus or job security anyway: Tricumen has RBC's cash equities business outperforming, even though the bank has been throwing cash equities staff overboard as its fourth quarter approaches at the end of this week.
The likely variability of this year's bonus round could make for higher-than-usual dissatisfaction when numbers are announced in the New Year. In turn, this could generate higher-than-usual interest in moving seats to banks which still seem to be paying.
The likely size of bonus pools will be clarified in the weeks to come. When bonuses are down managers need to manage expectations to ensure the diminished payout isn't too great a shock. However, it's never wise to do that too soon: at this stage of the year, people simply stop working hard and cruise into Christmas if they think they won't get paid.
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