If the first quarter is any indication, executives and employees in wholesale banking and asset management will get fatter bonuses this year, according to a New York executive recruiting firm.
More mergers and a pickup in stock underwriting may translate into a 25% increase in yearend bonuses for investment bankers, according to Johnson Associates Inc., in a study released May 21 of first-quarter earnings and other economic trends at a large sample of Wall Street firms and publicly traded asset managers.
Indications are that bonuses are returning to normal levels after the heady days of the late 1990s gave way to the market doldrums of the last three years, Johnson Associates said. The bonus trends reflect higher performance in various corporate banking activities and better expense controls.
Alan Johnson, the managing director at Johnson Associates, said in an interview Monday that his clients have unanimously indicated that compensation will increase this year. “Salaries will be modestly up, but bonuses are going to be up at least 15%.”
For investment banking companies, the positive outlook compares with a low 2003 base. Mergers and acquisitions and equity underwriting are expected to rise in the first half, with stronger pipelines than in the recent past. Further clarity on the outlook will come this month, when several of the biggest Wall Street firms report earnings for their fiscal second quarter, which ended May 31.
Commercial and retail bankers can expect their bonuses to rise 10% to 15% this year, according to Johnson Associates.
Low interest rates, improved credit quality, and strong consumer loan demand have resulted in strong performances, Mr. Johnson said. “The humdrum of commercial and retail banking continues to be star in most of the big financial services firms.”
Banks also are benefiting from tight cost controls in the last three years, he said. They have pared back staff and boosted productivity; that usually translates into higher pay.
First-quarter pay equaled 48% of net revenue for the average investment and commercial bank and 35% for the average publicly traded asset management firm, according to Johnson Associates.
Expenses at J.P. Morgan Chase & Co.’s investment bank rose 3% in the first quarter, largely because of higher compensation. Profits in the division rose 24% from a year earlier.
Compensation as a percentage of net revenues at JPMorgan Chase’s investment banking and asset management units was slightly below 35%, according to Johnson Associates.
JPMorgan Chase is set to report its second-quarter earnings in mid-July.
Asset management companies are also expected to increase their bonuses by 10% to 15%, largely because of an increase in assets under management. First-quarter expenses at Northern Trust Corp., for example, rose 5.9%, to $203.8 million; higher salaries and incentive compensation were partially offset by lower staffing levels.
According to Johnson Associates, Northern Trust spent about 35% of its net revenue on compensation and benefits.
Expenses at BlackRock Inc., the institutional asset management firm majority owned by PNC Financial Services Group Inc., rose 26%, to $112 million. BlackRock cited gains in incentive compensation related to higher performance fees. Assets under management rose 7% from the fourth quarter and 17% from a year earlier.
BlackRock spent just over 35% of its net revenues on compensation.
Both Northern Trust and BlackRock are slated to report their second-quarter earnings next month.
Compensation already started rising last year from 2002, when the recession was at its height. Bonuses rose 15% in 2003 across the financial services industry, Mr. Johnson said. Salaries rose a more modest 4% to 4.5%.
