Wall Street bonus pools look shallow in ‘unexciting year’

Bloomberg

Three Fed rate hikes, two major European elections and the biggest drop in China’s currency since 2008 would normally make for a busy year for macro traders, leaving them optimistic come bonus time. Not this year.
Investors haven’t found much to compel them to step up bets on the directions of interest rates and currencies in 2017, driving sharp drops in revenue at the Wall Street trading desks that serve them. At Bank of America Corp., rates traders are likely to see a slump of more than 10 percent in their bonus pool, according to people briefed on the discussions. Those teams at JPMorgan Chase & Co., the world’s biggest trading bank, are set for declines of about 5 percent, said people familiar with the figures.
“Rates didn’t do poorly on an absolute basis, it just didn’t do as well as last year because of the lack of significant catalysts,” said Options Group Inc. Chief Executive Officer Mike Karp. “Everyone hoped the French and German elections would create some
activity, but it didn’t happen.”
The definition of what’s exciting may have changed last year, when shock results in the UK Brexit referendum and the US presidential election spurred banks’ first jump in fixed-income trading revenue in four years. This year, more-typical economic surprises and well-telegraphed moves from the Federal Reserve didn’t measure up.
“There haven’t been that many catalysts. It hasn’t been that exciting,” JPMorgan Chief Financial Officer Marianne Lake said of the trading environment. “Volatility’s remained pretty low across the spectrum.” Top executives at Wall Street firms are currently setting the size of bonus pools for bankers and traders. They use the last month of the year to gauge performance and set preliminary totals for each business, while the heads of those units make their case for rewarding certain desks, according to recruiters and executives.
Most bond and equities personnel can expect smaller 2017 pay packages because of low volatility and a lack of disruptive events,
recruiter Options Group said
last month. Equities trading may see bonuses remain flat or fall as much as 5 percent, while fixed-
income traders could fare a bit worse, according to Johnson
Associates Inc.
For rates traders, it’s a harsh comedown from 2016, when those at JPMorgan saw the bonus pool rise by about 20 percent, and those at Bank of America and Morgan Stanley climbed more than 10 percent. That boost was fueled by factors including Donald Trump’s election, which roiled expectations for interest rates and economic growth.
On top of a weak year, other more structural trends are weighing on compensation. Struggles across the hedge-fund industry and the fewest startup funds since 2000 have made the threat of bank traders leaving less acute. And all firms are looking for ways to automate some of the more straightforward tasks in the
trading business, which may
eventually lead to jobs being cut.
Debt-trading revenue at the five biggest Wall Street firms declined by 7 percent in the first nine months of the year, fueled by drops of 23 percent at Goldman Sachs Group Inc. and 11 percent at JPMorgan. Equity trading was little changed, with Citigroup Inc. and Bank of America posting
the only increases.
Any hope that the fourth quarter would redeem the year has been quashed. Several bank executives this month forecast that trading revenues will be down at least 15 percent.