Global Investment Banks Could Cut Bonuses By Up To 50%, says new survey

We’re well into the credit crisis, and yet, a multitude of questions remain largely unanswered.

For instance, what real impact has the credit crisis had on global investment banks in Australia? Will the banks be forced to reduce headcount? Will there be growth in numbers due to regional commitment by some U.S and European firms? What is likely to happen to salaries for year-end 2008?

Of course, there is also one important question on the lips of anyone working in banking or financial services: What will happen to my bonus?

Looking for answers to these questions, we performed a recent survey of several executives from the majority of Australia’s 12 global investment banks.

The survey included representatives from key divisions of the banks – including equities, global markets, financial markets and fixed income. In essence, participants were asked for their opinions on how their parent company (or head office) would be managing remuneration and bonus allocations for the coming financial year. Although discussions with offshore counterparts would be taking place late September, the following observations were made:

The survey revealed four predictions:

1.  There will be staff cuts. As the parents of the Australian subsidiaries continue to report global losses of billions of dollars, offshore banking operations have been forced to cut staff in areas where there is limited activity. This is due to a variety of factors – such as capital constraint, a subdued risk appetite for particular products, and lack of investor confidence. Locally, while the mood is subdued, there is a sense that some of the banks may look to cut staff numbers over the next few months, in areas such as back office, client services and sales. This could lead to possible head count replacement in the first quarter of FY09 – though this will be very cautiously exercised.

2. Banks will develop better retention strategies. As the banks become better managers of their human capital, senior management will undoubtedly look at ways in which they can more effectively retain their key talent.

3. There will be a re-allocation of the bonus pool. 
New retention strategies will translate into the majority of the bonus pool being allocated to high performing talent, whilst other employees could receive significantly lower bonuses or even none at all.

4. Reduced bonuses. 
The overall outlook is that the bonus pool will be down between 20-50% on last year as the parent companies strive to preserve capital. There is likely to be little movement on fixed costs, but (STI) bonuses will be down, and a greater proportion of equity/stock will be allocated to individuals.

Ironically, these predictions have been made against a backdrop of apparent local stability.

On the Australian front, many of the investment banks are performing better this year than their offshore counterparts, and some of the better-positioned banks are reporting increased revenues for the year, particularly in cash equities foreign exchange, financing and derivatives.

For further information, please contact:

Sharon Mackie


Direct:  +61 29235 9806