JPMorgan Chase & Co boosted costs tied to pay by 9% in its commercial and investment banking division in the first nine months of the year. — Bloomberg
NEW YORK: After a bumper crop of results, traders across Wall Street are hoping to cash in on the windfall when bonus season comes around.
JPMorgan Chase & Co boosted costs tied to pay by 9% in its commercial and investment banking division in the first nine months of the year.
Goldman Sachs Group Inc’s firmwide compensation expense rose by the same amount, while Morgan Stanley lifted the figure for its Wall Street unit by 4%.
The biggest banks are on track to post their best trading year since the onset of the Dodd-Frank era which clamped down on swashbuckling instincts on Wall Street, and with it spelling an end to outsized paydays.
Since then, a proliferation of banking regulation has helped bigger banks consolidate more business as the smaller players get squeezed out.
Morgan Stanley chief executive officer Ted Pick said firms like his are putting more distance between them and their smaller rivals, after the company posted the best gains on Wall Street.
“There is an element of the leaders pulling away from the pack because it costs a lot to run those businesses,” Pick said.
The costs to run a fully-scaled markets business can range from US$10bil to US$15bil a year, according to Amrit Shahani, a partner at BCG Expand, the research arm of Boston Consulting Group, who analyses the performance of global banks for the consulting firm.
“Only the biggest players can afford to absorb such costs and run an attractive global business,” Shahani said. “The risk for regional banks is to either find partnerships or realise the writing on the wall.”
The reopening of capital markets has fuelled increased volumes for trading desks, and buoyant market valuations have proved to be a strong tailwind, he said.
“This should result in double-digit percentage increase in bonus payout for traders.”
While fortunes can always change in the last quarter of the year, the trend points toward the best year for pay since the banks set revenue records in 2021.
It follows two years of consecutive drops in pay as profits retreated from the highs reached during the pandemic.
“The pressure right now is coming largely from incentive comp related to the fee businesses,” Bank of America Corp chief financial officer Alastair Borthwick told analysts on Monday.
“So think about sales and trading up 12%, investment banking up 18%, asset management up 14%,” Borthwick said.
Even Citigroup Inc, going through a major overhaul aimed at lowering costs, cited higher incentive compensation tied to revenue growth as it said it must “invest in talent”.
The clean sweep of trading beats was particularly notable after a parade of senior banking leaders talked down expectations for results at an industry conference last month, signalling a slowdown in a choppy period for markets.
Markets whipsawed in the quarter as investors reacted to key events, speculating on US Federal Reserve (Fed) rate-cut moves, and the impact of turbulence in Japanese markets.
The VIX, a gauge for volatility in markets, climbed to the highest level since 2020, before the stock market recovered and marched toward new highs.
Bonuses in credit, commodities and securitised products are likely to be up, along with equities trading, which drove surges in third-quarter results, according to Michael Karp, the chief executive officer of recruitment firm Options Group. — Bloomberg
