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For bankers, 2020 was a bad year to have a good year

  • Traders and investment bankers have flourished despite the global economic crisis, turning bonus discussions into a delicate balancing act

Wall Street banks have had a decent crisis so far. That is unlikely to translate to bumper bonus payments for bankers and traders, as chief executives and boards grapple with the optics of big payouts amid economic hardship on Main Street.

At Bank of America Corp. the bonus pool is likely to be flat, according to people familiar with the bank’s plans. Bonuses for some JPMorgan Chase & Co. traders are expected to rise, according to a person familiar with the situation, but not as much as the 39% increase in trading revenues at the New York-based bank in the first nine months of 2020. Morgan Stanley has said it would pay $1,000 bonuses to most employees making less than $150,000, but hasn’t given any guidance on payouts for higher-earning staff.

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“It’s a bad year to have a good year," said Gilbert Swann, a recruiter at Sheffield Haworth in London whose clients include global investment banks. “It’s not a year that people are going to get paid significantly up, so flat might be the new up."

Payouts to bankers and traders are especially contentious this bonus season. Millions lost their jobs as economies were closed and businesses were bankrupted in the coronavirus pandemic. But the banking sector has largely withstood the crisis thanks to trillions of dollars of funding and support for borrowers from governments and central banks. Investment bank revenue surged as trading increased in volatile markets and companies raised fresh debt and equity.

Now, traders and bankers expect to be rewarded for their efforts. That is creating a dilemma for chief executives and boards who worry about how their companies are perceived by politicians, regulators and the taxpayers who will be paying for the crisis for years to come. Even the best performers may find their bonuses curtailed because of this public-perception problem.

“Executives are rightly super-concerned about the optics," said Nick Miller, a partner at London-based recruitment firm Odgers Berndtson whose clients include global banks. “They’re very wary of the fine line between keeping staff motivated and respecting the broader picture of what it looks like to be paying bonuses."

Over the course of the coronavirus crisis, banks have emphasized their role in channeling emergency credit to companies and letting households delay paying back loans. Those with investment banks benefited, though, from an “everything rally" last year in stocks, bonds and other assets that was fueled by central bank and government stimulus.

Global investment banking revenue rose 25% to $188.2 billion in 2020 compared with the previous year, according to a forecast from Coalition Greenwich, benefiting lenders such as JPMorgan, Morgan Stanley and Goldman Sachs Group Inc.

“Wall Street got a lot of support from the Federal Reserve when the pandemic hit," said Tim Schlittner, spokesman for AFL-CIO, the largest U.S. labor federation. “We should focus on getting money to Main Street."

According to New York-based compensation consulting firm Johnson Associates, banking industry bonuses are likely to be flat overall compared with 2019 but with wide variations, with lower payouts in retail banking and higher payouts for equity and debt traders, salespeople and underwriters, and “unusual scrutiny" of pay for chief executive officers.

“Investment bankers on average are going to get paid more," said Alan Johnson, head of the consulting firm. “It’s uncomfortable in the middle of a pandemic. Some of these people are not beloved to begin with and then we’re going to have stories about people going out and buying fancy cars, and fancy apartments, and that’s going to make a lot of people angry."

In Europe, regulators in London and Frankfurt restricted bonuses and dividend payments in 2020 to make lenders conserve capital in the worsening pandemic. They eased the restrictions in December but told banks to be prudent and moderate on bonuses.

Banks will be alert to any backlash from politicians or customers, in a year when the gap between the rich and poor has widened, Carlo Kostka, a lawyer at Covington & Burling LLP, said.

“The Covid crisis has created massive inequalities, and everyone has to ask themselves at the end of the day if bonuses beyond a certain limit exacerbate that issue," Mr. Kostka said.

This story has been published from a wire agency feed without modifications to the text.

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