By Lauren Tara LaCapra and David Henry
NEW YORK, Oct 15 (Reuters) - With anemic bond trading
revenue over the past few months hurting Wall Street profits,
pay cuts and even layoffs are back on the table just when the
future had started looking up for traders.
Overall, bonuses on fixed-income, currency, and commodity
trading desks will likely be down 10 percent to 15 percent, said
Alan Johnson, head of the Wall Street compensation consulting
firm Johnson Associates. It could be the third or fourth year in
a row in which some Wall Street bond traders get $0 bonus
checks, he added.
Just two months ago Johnson had predicted bonus increases of
5 percent to 15 percent for fixed-income traders, but since then
the Federal Reserve has decided not to start winding down its
bond buying stimulus program, and gridlock has hobbled
Washington. Both have alarmed investors who are unsure of where
markets are heading, and are reluctant to make huge bets that
could quickly turn against them.
On Tuesday, Citigroup Inc's posted ho-hum earnings
after a sharper-than-expected 26 percent drop in fixed-income
trading revenue, excluding accounting adjustments. On Friday,
JPMorgan Chase & Co reported a more moderate decline in
revenue from that business, but analysts expect Wall Street
rivals Bank of America Corp, Goldman Sachs Group Inc
and Morgan Stanley to report 20 percent to 30
percent declines later this week.
If fixed-income trading volumes do not improve, banks may be
forced to reduce headcount again, adding to the tens of
thousands of jobs the industry has already shed since the
financial crisis of 2008, recruiters, analysts and other
industry sources said.
"In this kind of environment, expense initiatives are always
going to be on the table," said Tom Jalics, senior investment
analyst at Key Private Bank. "Senior-level management is keenly
focused on containing expenses - it's the buzzword of today and
it's going to be around for awhile."
On Citigroup's conference call on Tuesday, analysts peppered
Chief Financial Officer John Gerspach with questions about the
bank's expenses and whether it had to do more to cut costs.
Gerspach said Citi set aside less money for bonuses, and
acknowledged that there could be some "variability" in expenses
on a quarterly basis. But he added the bank does not expect to
make any big cost-cutting announcements in the near-term.
Earlier in the day, when asked about the possibility of
layoffs in fixed-income, currencies, and commodities trading,
Gerspach told reporters, "We are comfortable that we have the
business appropriately sized."
Fred Cannon, analyst at Keefe, Bruyette & Woods Inc, said it
would take six months to a year of similarly weak results before
the bank would consider another round of layoffs.
"I don't think they want to make a strategic decision based
on one quarter," he said.
Traders and other Wall Street professionals are getting
higher base salaries than they did before the crisis. Analysts
said that meant if volumes stayed low for long enough, cutting
bonuses can only do so much to cut a bank's costs, and layoffs
would be more likely.
"They will likely have to reduce headcount," David Knutson,
a senior research analyst at Legal & General Investment
Management America. "That is a page out of any large bank's
A mid-level Wall Street trader might earn $500,000. Before
the crisis, total compensation might have been closer to
$800,000, said Johnson of the Wall Street compensation
consulting firm Johnson Associates.
After several years of cost-cutting, bond traders have
become less insistent on big bonuses and more grateful to be
employed at all, said Jeremie Lempkowicz, managing director at
the executive search firm Watson Ford International.
"A few months ago, having a job was the bonus, basically,"
said Lempkowicz. "People who were laid off were keen to get a
pay cut just to have a job."