Pay for junior bankers has risen 30% to $110,000 over the past year as banks have struggled to retain analysts amid an attrition crisis.
Now, those at the bottom are facing a reality check: bonuses are shrinking.
Investment banks have slashed analysts’ bonuses, which are typically paid over the summer, as deal activity has fallen and fees have come under pressure. For the 20-year-old in his first year on the job, that has been hard to swallow after banks paid out handsome bonuses for those above the ranks in January.
“It’s disappointing,” said one junior banker who said his bonus had been reduced to 40% of his base salary. “It’s an extreme environment right now and volumes have come down dramatically, but young people have typically been shielded from cost cutting.”
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After a leaked PowerPoint presentation by a group of Goldman Sachs analysts in March last year revealed 100-hour weeks, banks have scrambled to retain those in the junior ranks. Starting salaries have risen from $85,000 to $110,000 at the big US investment banks and from £50,000 to £70,000 at those in London, with boutique players offering even more.
Just six months ago, traders at banks including Bank of America, JPMorgan and Goldman Sachs received bonuses that rose 50% compared to the previous year and rivaled the glory days before the 2008 financial crisis. Fees for trading reached $130 billion last year as revenue from mergers and acquisitions and capital markets increased.
However, investment banks are preparing for leaner times. Fees have fallen 40% to $47.1 billion through 2022, according to data provider Dealogic, with a larger percentage of the decline going to large players. Banks are under pressure to cut costs and analyst bonuses have been targeted.
JPMorgan cut analysts’ bonuses from 90-100% of salary to 45-60% this year, Financial News reported, while Barclays and Morgan Stanley have also cut back.. Bank of America has largely kept bonuses between 70 and 100 percent of base salary, analysts told FN, although some juniors at the lower end of the range said bonuses were closer to 40% Citigroup, Deutsche Bank and Goldman Sachs had not yet announced analyst bonuses at the time of writing.
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FN reached out to juniors at banks like Bank of America, Barclays and JPMorgan to get the numbers.
Chris Connors, a vice president at Wall Street compensation consultants Johnson Associates, said bonuses will be reduced overall this year, but the power has shifted away from employees.
“There is a greater focus on cost reduction and workforce evaluation, but analysts are considered cheap, relatively speaking,” he said. “With the hiring freeze at many tech and tech companies and a dramatic reduction in investment banking revenue, junior talent may not have as much influence in the market as it does in 2021.”
“Last year there was an arms race for young people,” said one Wall Street bank CEO. “Now the ratio of fixed salary to bonus has been permanently skewed towards salary and juniors should not feel shortchanged. In the long run, they will earn much more with bonuses.”
For bankers in their early years of a job that requires huge amounts of commitment and often sees personal relationships erode, the bonus cuts are an early reminder of the reality of working in investment banking.
“Banks are necessarily being more careful with bonuses, but they pay for production as they did in 2021,” Connors added. “Investment banking income is down substantially from last year and bonuses will drop at all seniority levels.”
To contact the author of this story with comments or news, please email Paul Clarke
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