2009 Investment Banking Analyst Bonus Predictions: How Low Will They Go?
Continuing with the tradition started last year, today we’re going to predict 2009 investment banking bonuses.
Things have changed a lot since we last did this exercise – just one of the fun side effects of financial apocalypse and numerous major banks failing.
Lots of Analysts were complaining about how “low” bonuses were last year (yes, $120K as a 22-year old puts you at the poverty line, doesn’t it?), but with a worsened economy over the past year the key question becomes:
Just how low will 2009 bonuses go?
Read on to find out…
Bonus Assumptions
Our analysis depends on a few key assumptions:
- Bonuses will continue to be awarded proportionally to a bank’s net revenue, as opposed to its profitability or any other metric.
- Banks will allot between 50% and 60% of net revenue for bonuses, as they’ve done in the past.
- Analyst bonuses are based on TTM (Trailing Twelve Month) numbers – in this case revenue over the past 12 months starting from 6/30/2009 – as opposed to Fiscal Year 2008 figures.
The other assumption is that banks will pay roughly the same bonuses as other banks - at the Analyst level this is reasonable, but as you move up the ladder the more troubled banks are likely to pay less than the healthier ones.
Unknown Factors
The biggest unknown factors are how banks will react to the public outcry against huge bonus payments, and how the new Presidential administration in the US will intervene (if they do anything at all).
Based on history, banks are unlikely to care too much or behave any differently – Wall Street has never had a “good” reputation, and highly-paid employees need to remain relatively highly-paid to continue working in the field.
Another unknown factor: traditionally bulge brackets and larger middle-market / boutique firms pay Analysts about the same bonus, but that may not hold true this year.
Larger firms will probably continue to pay in the same range, but boutiques may cut back more on Analyst bonuses this year.
Changes from Last Year
Well, there’s no longer a “Merrill Lynch,” “Lehman Brothers,” or “Wachovia,” for one. I’ve added UBS to the mix since it was left out last time, and I’ve split up the list by bulge bracket and middle-market/boutique.
The Numbers
Here’s the first chart, showing how bulge bracket investment banking revenue has changed over the last 12 months and over the most recent quarter:
Technically I should have footnoted these entries to explain where the numbers came from, but there’s no MD watching over me asking about it anymore, so let’s just skip that part.
Of this set, the BoA, Barclay’s, Citi, and JPM numbers are skewed due to acquisitions. Their filings did not make it easy to separate out “organic” revenue, so this is the best we can do for now.
Revenue is down substantially over 2008 – though not by as much as you might expect if you listen to the news all day.
The most “normal” ones in this set are GS, MS, and CS, because they were less affected by writedowns and did not make major acquisitions – unlike the other banks listed here.
We can say that the “average” bank’s revenue has declined by 30-50% over the past year.
Boutique Numbers
Now here’s the data for the boutique and middle-market firms – not every single firm is listed here, this was just a sample based on the data that was readily available:
For all the talk of boutiques hiring more people than the bulge brackets, it’s interesting to note that revenue has declined more sharply at these smaller firms.
There’s also more of a consistent pattern here – significant decline, rather than the group above where a few firms still did ok. Lazard fared better than the rest, probably due to Restructuring being a hot area right now.
2009 Predictions
If we assume that bonuses are awarded proportionally to investment banking net revenue, a 30-50% decline in bonuses seems likely.
Not all the banks on this list have reported Q1 2009 results, so this could change by the time we hit the summer – but based on the figures available, this seems like the most likely scenario.
In case you forgot, last year’s “top” numbers were:
- 1st Year: $65K
- 2nd Year: $85K
Based on this analysis, 2009 bonus numbers will be in these ranges:
- 1st Year: $30K-$45K
- 2nd Year: $40K-$60K
But What About Everyone Else?
Most others think that bonuses will fall more than this. I’ve seen quotes of $20-30K for 1st year Analysts – some banks may go that low, but I don’t think the average will fall by quite that much.
Considering how bad the economy is and how many banks have failed in the past year, these results are a bit surprising… but hey, the numbers don’t lie.
2010 Outlook
Maybe we should just wait for 2009 numbers to be decided first. 2010 could really go either way, but I don’t see it being dramatically different from this year’s numbers.
There are some indications that pay may return to pre-crisis levels by the end of this year – I’m not so optimistic on that one, but stranger things have happened.
But Is This Right?
Who knows? Just like last year, though, when final numbers are announced I’ll write something that compares them to these predictions.
This year I’m writing this almost 2 months in advance of the actual announcements, so that’s an automatic handicap – but I’m reasonably confident that these numbers will be in the correct ranges.
Like this article? Subscribe via RSS and start understanding investment banking.Get Into Investment Banking via Email:
Follow M&I on Twitter
Tags: boutique investment banks, bulge bracket, investment banking, investment banking analyst, Investment Banking Bonus, middle-market, understanding investment banking
Other readers who liked this article also liked these:
I have never quite understood this but why do banks pay such a huge amount of their net revenue as bonuses?
They have no other expenses because all the value is based on people and services… no factories, no manufacturing costs, nothing like what a “real” company would have.
So they pay out a huge % of revenue as bonuses because they *can* and because everyone else is doing it too.
What else are you going to do with the money? Invest in IT?
are these predictions after-tax?
Pre-tax since everyone’s tax situation is different. After-tax in the US in NYC would be around 50% of these numbers.
Do you have any updated views on what to expect for bonuses for IB analysts?
Not yet – we’ll see soon!
Any idea when the announcements will start trickling in?
Probably over the next few weeks (early July 2009). I’ll write another article once everything is out.
Looking forward to the updated analysis…
http://online.wsj.com/article/SB124649352055183157.html
How much of that pertains to IB analysts/associates ?
None. So far this year bonuses are coming in to be about what I predicted above.
Keep in mind that banks really don’t give a crap about you as an Analyst/Associate… all they care about is who can bring in revenue, aka the MDs.
40-50k for S&T this year
See the latest article on front page… interesting that S&T matches IBD, though I guess that’s pretty common when the economy is bad.
Are bonuses in asset backed securities for a first year analyst similar to the bonuses of traditional bankers (M&A, advisory, etc)?
How about at a top 5 bank (i.e. BofA, JP, PNC)?
Not sure but I’d imagine they’re less, especially since asset-backed securities caused the meltdown in the first place… bonuses for those roles also tend to be more variable than M&A/corporate finance.
What about for boutique firms? Like Cowen for example…are their bonuses lower than the bulge firms?
Depends on the year, but usually yes they are lower than bulge brackets. Regional boutiques would still be lower than Cowen etc. though.
When do you normally get the signing bonus? Can you have it paid to you before you start working ?
Usually you get it just as you start working or maybe slightly before. You normally can’t request it earlier because large companies don’t make exceptions for that kind of thing
when is bonus usually given? -December or January?
summer for analysts dec/jan for others
Will the new $90 bn tax and bonuses be affected?
Yes, but I haven’t done predictions for this 2010 yet. Later this year.