US Banker Bonuses Set to Drop Following Weak Revenues

A punishing economic environment is set to reflect on depressed banker bonuses across US and European investment banks in 2022.

Poor first quarter results would currently lead to a 5-10% fall in bonus payouts at commercial banks, according to research from Wall Street compensation consultancy Johnson Associates featured in an S&P Global Market Intelligence report.

The dip comes as a result of global economic factors such as the Russian invasion of Ukraine, rising interest rates, and inflation. According to Johnson Associates, bank revenue has also been hit by these factors leading to a marked decrease in equity underwriting and M&A advisory activity.

The research anticipated bonuses to drop by 35% to 40% by the end of the year. However, the consultancy also predicted that fixed income and equities trading desks could see increases of up to 20% and up to 10%, respectively, due to more client activity.

The biggest US banks, with the exception of JP Morgan, cut compensation and benefit costs in the first quarter of 2022, with Goldman Sachs making the biggest cuts at 32%. Credit Suisse slashed bonuses following the collapses of supply chain finance firm Greensill in 2021 and its involvement with Archegos, the family office for Bill Hwang who was arrested on federal fraud charges in April this year.

US banking was hit by a $17 billion or 22% decline in income over the first quarter of 2022, according to the Federal Deposit Insurance Corporation. Combined net income across all federally insured banks fell to $59.7 billion for the first quarter.

The decline was broad-based, with over 62% of banks reporting annual declines in quarterly net income. More banks put capital aside to protect against potential loan losses, with $19.7 billion more being allocated for provision expenses compared to the first quarter of 2021.