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Confusion on Wall Street: Will Bonuses Be Lower This Year?


There is a difference of opinion on the Street as to whether or not bonuses will shrink this year.

MINYANVILLE ORIGINAL Bankers on Wall Street appear unsure whether or not their bonuses will get cut this year.

On one hand, it seems all but certain that they will not be getting big paydays. In response to profit squeezes induced by tighter regulations, banks such as Deutsche Bank (NYSE:DB), Citigroup (NYSE:C), UBS (NYSE:UBS), and Credit Suisse (NYSE:CS) have already planned layoffs. The next step in the cost-cutting playbook is, of course, to cut compensation.

Speaking to the Financial Times, Morgan Stanley (NYSE:MS) CEO James Gorman confirmed that his employees would be getting smaller bonuses this year.

"There's way too much capacity and compensation is way too high. As a shareholder, I'm sort of sympathetic to the shareholder view that the industry is still overpaid," Gorman said.

Gorman went on to explain how the Wall Street mindset on compensation has evolved in recent years.

"What the Street has historically done is when revenues went up, they kept the comp-to-revenue ratio flat. They rank comp by ratio. When revenues went down, they increased the comp-to-revenue ratio because they said, 'We might lose all our people. We have to increase it.' That's a classic Wall Street case of 'Heads I win; tails, you lose,'" he told the Financial Times. "The current Wall Street management is a little tougher-minded about that and shareholders are certainly tougher-minded."

In an interview on Bloomberg Television, Morgan Stanley analyst Betsy Graseck also said that "compensation will probably drop from a year ago as banks attempt to avoid further headcount reductions," with cuts coming from bonuses instead of base salaries.

However, on the other hand and in spite of these gloomy projections, employees on Wall Street are remarkably upbeat about bonus expectations, at least according to a survey by career networking site, eFinancialCareers.

48% of Wall Street executives polled by the site expect higher bonuses this year, an increase from the 41% who thought their annual bonuses would increase last year. eFinancialCareers explained the reason behind the positivity:

What appears to be contributing to the higher bonus expectations is the fact that not all financial services sectors are hurting as much as others.

High expectations from employees working for alternative asset and long-only asset managers are contributing to this result while lower expectations are being registered at the bulge brackets and broker-dealers, where respondents were the most pessimistic.

An associate at a midsized investment bank Minyanville spoke to, who declined to give his name, said that bonus size will also differ between different types of banks.

"A firm that's pure advisory, like Evercore Partners (NYSE:EVR), won't have to worry about at-risk capital, so it can pay larger bonuses that correlate to their revenue," he said.

Certainly, given that bonuses are doled out based off of year-end numbers, Wall Street bankers will be keeping their fingers cross for a good earnings season this quarter, which would help lift overall numbers. Wells Fargo (NYSE:WFC) and JPMorgan (NYSE:JPM) will be the first banks to report third-quarter earnings on Friday.

Twitter: @sterlingwong
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