How much is an Asian investment banker worth? About 5% more than last year apparently, FinanceAsia is hearing.
Bonus season is upon us once again and the region’s investment bankers are about to find out that, although they had a good year as a group, this will probably not be reflected in their bonus.
Although this time of year traditionally sees bankers handed controversially huge payouts – much to the delight of sports car showrooms and luxury goods stores – this year will see a touch more collective realism.
“In the current climate, bonuses provide much greater insight into a team and individuals’ revenue and profitability, and are used by management to send a very clear signal of an individual’s net worth to a firm,” Nick Green, managing director at GreenGroup Executive, an Asian financial services headhunter, told FinanceAsia.
However, Asian bankers might be forgiven for thinking their worth is, well, worth more after a year of record regional investment banking revenues. Asia-Pacific ex-Japan investment banking revenue reached $11.3 billion in 2014, up 28% from 2013 and the highest since 2010, according to Dealogic data.
But once again they will be looking a little less at their own performance and a little more at what has been going on at global headquarters after a year of regulatory fines and weak performance in certain areas such as fixed income.
Asian bankers are therefore expecting to take a hit for the misdeeds and failures of others in their company, with bonuses set to rise about 5% generally in the region, one senior banker in Hong Kong told FinanceAsia.
A second headhunter contacted by FinanceAsia was a little more positive, suggesting bonuses could rise by the low single-percentage digits at some banks globally and about 10% for Asia generally.
The Hong Kong banker said juniors would do much better than their more senior counterparts as banks look to retain up-and-coming talent.
A junior managing director is looking at an average $800,000-$1 million bonus, a few years ago the figure would have been closer to $1.2 million to $1.3 million.
JP Morgan on Wednesday became the first global investment bank to report full-year 2014 earnings and, although they were strong, the results bore the marks of two key issues that will shape bonuses this year: fines and fixed income.
The world’s largest investment bank by assets set aside $1 billion last year to deal with a US government investigation into foreign exchange trading, while it also suffered throughout the year from weak fixed-income trading.
It is unclear what will happen to the bank’s bonus pool but FinanceAsia is hearing that bankers at other institutions are expecting to take a hit for problems elsewhere.
Fines and fixed income
UBS bankers in the region, for example, are none too happy with their lot this year, FinanceAsia has been told, with estimates of a 20% cut to bonuses after a(nother) year of regulatory hardship.
The Swiss bank has been under intense regulatory pressure over the last few years over bank secrecy and alleged tax avoidance practices.
As recently as November UBS was fined SFr774 million ($759 million) by Swiss, UK and US regulators as part of the industry-wide foreign exchange probe that also snared the likes of JP Morgan, HSBC, Citi and Royal Bank of Scotland. HSBC is also expected to cut bonuses as a result of the fines, according to media reports.
Other issues that brought fines to some banks include providing favourable research in return for underwriting business, busting sanctions and legacy punishments for events leading up to the financial crisis.
Fixed income also looks set to be a drain on Asian bankers’ bonuses in spite of the region performing relatively well compared with others.
Asia-Pacific ex-Japan saw record debt capital market revenues in 2014 amid record volume, while syndicated loans rose 19%, also to an all-time high.
Globally, however, the picture looks more gloomy, with full-year DCM revenue down slightly and fourth-quarter revenue 9% lower from the year-ago period. Global loan revenue dropped 14%.
On Thursday, Citi and Bank of America Merrill Lynch both reported weak full-year earnings, with both hit by falling fixed-income revenues.
Credit Suisse, Citi and Morgan Stanley are expected to compensate for this global weakness by cutting into bonuses in the Asian region.
Such gloom was evident in an October survey of financial professionals carried out by eFinancialCareers, which found fewer bankers expecting a bonus this year.
While not 100% reliable of course, 78% of survey respondents in Hong Kong said they expected a bonus compared with 83% the year before.
“This year we are potentially seeing more realism in the market,” Neil Clark, director of Asia-Pacific for eFinancialCareers, told FinanceAsia at the time. “As we move further along in the new compensation era, banks are getting better at managing expectations and that perhaps is filtering down.”
Morgan Stanley bankers, meanwhile, probably wish there was less realism and more months in the year after Ping An squeezed in its $4.75 billion share placement at the end of 2014.
Alas it appears the deal, on which the US bank was sole placing agent, came too late to add heft to the bank’s bonus pool, although there’s always next year. Those executives handing out bonuses have long memories, surely.
Doughnut bonuses (nada) are likely to be rare again this year and there will obviously be some who reap the full rewards of a strong year.
Goldman Sachs, for example, appears to be in bullish mood – isn’t it always – after a strong year, although the sheer number of managing directors make the watering hole a little crowded.
Bankers in China, meanwhile, are perhaps sitting more pretty than most after the highest annual equity capital markets volume in the country since 2010.
Volume totaled $163.9 billion through 637 deals, according to Dealogic data, up 76% from 2013.
Bankers are expecting large bonus increases and pay rises on the back of this, which might make up for the rather muted start to the Hong Kong-Shanghai Stock Connect scheme.
Ultimately, if the theme of bonus season going forward really is one of attrition, forced or otherwise, that surely is a good thing. It proves that regulators are doing their job.
Not that everyone agrees.
“Banks are under assault,” Jamie Dimon, JP Morgan chief executive, told an analysts’ conference call on Wednesday night after the US bank reported its results.
“In the old days, you dealt with one regulator when you had an issue. Now it’s five or six. You should ask the question about how American that is, how fair that is.”
Additional reporting by Alison Tudor-Ackroyd
This article has been updated to reflect Citi's and BofA Merrill's results