Local investment bank chiefs poised to lock in annual bonus pools: how will they fare?
It’s a “show me the money” period – with many tens of millions of dollars on the line just in Australia – as highly paid bankers make their case and jostle for their slice of the bonus pot.
Australian investment banking bosses of global institutions will get a clearer read on their lucrative 2024 bonus pools in coming weeks, with all indications that average annual banker payments will be up on a soft 2023. The Australian arms of Wall Street banks are readying to find out more about their total bonus allocation late this month, while European-based banks are more likely to get further clarity in December.
While 2024 has seen improved deal activity levels across mergers and acquisitions and equity capital markets, it’s more of a steady increase, rather than a stellar year.
Typically, there is a flurry of deal activity leading into the year’s end, but there are mixed views about whether that will even eventuate this year.
One local investment banking boss, who declined to be named, told this column he expected “mild upward pressure” on 2024 bonuses, given overall activity levels had been better versus 2023.
He also said at some firms the overall bonus pool would take into account hiring expectations over the next few months, as some banks beefed up their ranks ahead of a further expected improvement in activity in 2025.
Poor performers face the axe as investment banks seek to preserve their bonus payments for those bankers they deem worthy of heftier paydays.
Another senior banker, also speaking anonymously, said of bonuses: “Globally performance has been better and, on that basis, you would expect there to be an improvement.”
He said while the volume of mergers and acquisitions in dollar terms had improved, other areas such as the completion rate on sales of private businesses “hadn’t been great” in 2024, given a lingering gap in some sectors between vendor and buyer expectations.
Bonuses will of course vary across bank business lines and depend on how many deals or fees a team or a specific banker helped rake in for their firm.
Australia’s total year-to-date investment banking fee pool amounts to $US2bn ($3.1bn), up almost 7 per cent from the same period in 2023, but down on year-to-date levels of $US2.6bn at November 15 in 2022 and 2021 respectively, according to London Stock Exchange Group (formerly Refinitiv) data.
Announced mergers and acquisitions with any Australian involvement amounted to $US95.3bn, up from almost $US85bn this time last year, while in equity capital markets activity is almost 4 per cent higher for 2024 despite another quiet year for sharemarket floats. However, there are a few transactions lined up for the final weeks of 2024, including the initial public offerings of construction and equipment hire company Symal Group and payment services firm Cuscal.
The bigger deal on the near-term horizon comes from acquisitive HMC Capital, which has indicated it will list a $4bn data centre fund on the ASX before Christmas, after it struck a deal to buy the iseek operating platform.
The trio of listings will put more of a spring in the step of capital markets’ bankers, as those important bonus deliberations take place. Goldman Sachs often sets the remuneration tone globally for those in the investment banking industry. Bloomberg has already reported the firm is readying for the biggest intake of partners to its ranks in 2024 under the stewardship of chief executive David Solomon, indicating better conditions this year.
Goldman makes appointments to its celebrious partnership ranks every two years. Goldman’s third-quarter earnings report showed compensation and benefits, within the firm’s operating expenses, were up 9 per cent for the nine months ended September 30, compared to the same period in 2023.
Optimism also abounds as Wall Street banks rule off this year and head into 2025. US banks saw their share prices rally strongly this month in the wash-up of the US election, amid expectations a second Trump presidency would instil pro-business policies, tax cuts and a loosening of financial services and banking regulation.
New York-based compensation consultants Johnson Associates have estimated healthy increases in 2024 bonuses among some parts of investment banks, anticipating a jump of 25-35 per cent for bankers working on debt transactions. For equity capital markets, they tip a 15-25 per cent increase, while for equities sales and trading a rise of 15-20 per cent is expected.
At the other end of the spectrum, Johnson Associates expects flat bonuses for real estate bankers in 2024, a 5 per cent increase for those working on private equity deals and a 5-10 per cent rise for insurance bankers.
The year isn’t over yet though, so firms will be astute in trying to anticipate how they will finish 2024. US investment banks typically report their fourth-quarter earnings in January and staff are informed of bonus payments around the same time.
European investment banks – such as UBS and Deutsche Bank – generally report their fourth-quarter earnings later than the US banks, which tends to mean bonuses day is later too.
Macquarie Group has a March 31 year end, and its bonus period typically begins in May. Trans-Tasman firm Jarden also rules off its year on March 31, while the other relative newcomer, Barrenjoey, has a June 30 balance date.
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For the lion’s share of the investment banking industry, it’s coming up to a crucial time of the year, when global and local bosses determine the size of lucrative bonus pools.