Investment bankers prepare for drop in bonuses, deferral payouts

Investment bankers prepare for drop in bonuses, deferral payouts

Mumbai: With investment banking revenue down more than 30% so far this year, bonus and deferral payouts at the end of the year are going to be half of what they were in 2010, bankers and headhunters said, hit by a slump in deal-making that reflects the all-round economic uncertainty.

Since 2008, around 70% of the remuneration of investment bankers has been in the form of stocks, deferral bonus and cash payouts. Investment bankers expect the bonuses to be announced at the end of December and January will be far lower than those in 2010; in some cases, there will be cutbacks as well.

Foreign banks operating in India announce their bonuses at the end of the calendar year, while their domestic counterparts unveil them by May-June as they follow an April-March fiscal cycle.

So far this year, banks’ core investment banking revenue has dropped 30% to $464 million (Rs 2,420 crore today) from the year-earlier period, according to data from Dealogic Plc, an investment banking data provider.

Citibank NA topped the chart with around $37 million of revenue, followed by Standard Chartered Bank ($30 million), Credit Suisse ($21 million), Bank of America-Merrill Lynch ($21 million) and JPMorgan ($20 million).

Fears about further job losses are rife in the market. Those that have cut staff this year include Bank of America-Merrill Lynch, Nomura Financial Advisory and Services India Pvt. Ltd, BNP Paribas SA and Barclays Capital, the investment banking arm of Barclays Bank Plc.

While the mergers and acquisitions (M&A) business has been buoyant this year, equity, a key driver until now, has taken a beating due to the subdued capital markets. Equity capital market deals have slumped 67.31% to $9.77 billion so far this year, Dealogic data shows. M&A deal volumes have dropped 44% to $54.25 billion. Debt capital market volume has dropped 25.17% to $33.66 billion.

“Bonuses are going to be lower than the broader fall in the revenues of investment banks in India. While some banks have already undertaken cost-cutting measures by letting go of heavy-remuneration but non-performing staff, potentially some will cut back bonuses as compared to last year," said Puneet Singh, a partner at international headhunting firm Heidrick and Struggles.

The head of investment banking at a large foreign bank said the cyclical nature of the business is known and understood.

“Yeah, the revenues have been down and everyone is worried about their deferrals and bonuses, but this is something they factored in when they entered the industry," the person said. “I have been here (in the industry) for 16 years and have seen many such cycles."

After 2008, most investment banks reconsidered their remuneration policies and started giving around 70% of the total package as deferral and cash bonus to the employees. Banks justified this as a way of weeding out non-performers from those who perform well.

“Bonuses are going to be conservative. In the current global scenario, some of the banks might not announce bonuses also," said Siddharth Raisurana, head (consulting) at ABC Consultants, a headhunting firm.