Low Deal Flow Leads to Lower Year-End Bonuses for Wall Street

In a not-so-happy turn of events for Wall Street bankers, it looks like their year-end holiday bonuses will be less than stellar this year. The year has been marked by slower deal flow, especially in the equity capital markets (ECM), leaving bankers with lower-than-expected compensation packages.

Bonus Points

For ECM bankers, 2023 has been a year of rebound, but it hasn’t quite reached the levels that were hoped for. While equity capital deal flow has exceeded $100 billion, surpassing last year’s $92 billion, it is still far from the $200 billion levels seen prior to the pandemic.

The decline in the S&P 500 index since its late-July peak, along with a lackluster IPO market, has contributed to this disappointing performance. Even successful public market debuts from companies like Instacart and Arm haven’t been enough to revive the IPO space. Bloomberg Intelligence senior analyst Alison Williams suggests that the fourth quarter is unlikely to bring any respite, which means lighter compensation packages for bankers.

  • Junior bankers can expect bonuses of only 60%-70% of their base salaries, compared to the usual 100% in normal years, according to Brianne Sterling, senior vice president at executive search firm Selby Jennings.
  • The top eight banks had initially expected equity underwriting fees to increase by over 50% this year, but now consensus expectations put the number closer to just 20%.

Private Practice: The private equity sector has also posed challenges for banking. The number of publicly traded companies in the US has declined significantly, from approximately 8,000 in 1996 to just 3,700 today, according to the Center for Research in Security Prices. Meanwhile, US private equity firms have seen their management of total US corporate equities rise from 4% in 2000 to nearly 20% in 2021.

Pound for Pound: While US bankers are disappointed with their bonuses, their counterparts in the UK are set to have a banner year. A cap on banker bonuses in the UK expired in October, allowing British bankers to receive more than double their annual salaries in bonus pay. We could call it The Great British Bank Off.

Hot Take: Wall Street Bonuses Fall Short This Year, But UK Bankers Get a Boost

It’s not a merry holiday season for Wall Street bankers as their year-end bonuses are expected to be less generous due to slower deal flow in 2023. The rebound in the equity capital markets (ECM) has been slower than anticipated, with deals totaling over $100 billion, but still falling short of pre-pandemic levels. The decline in the S&P 500 index and the lackluster IPO market have dampened expectations for the fourth quarter. Junior bankers can expect lower bonuses, and top banks are revising their equity underwriting fee expectations. Meanwhile, British bankers are celebrating the end of a cap on bonuses, allowing them to receive more than double their yearly salaries. It looks like Wall Street bankers might need a little cheer from across the pond.

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