Pandemic on Wall Street causes rising levels … of bonuses

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Enforced takeovers during the crisis will mean a bumper year for the bankers who advise on billion-dollar deals

Just as most of us are feeling the effects of soaring inflation, which the Office for National Statistics said last week had reached a 10-year high of 5.1%, wealthy bankers and traders are looking forward to receiving extraordinarily large new year bonuses.

Banks on both sides of the Atlantic are finalising bonus pool deals that could be inflated by as much as 50% compared with last year, reaching their highest levels since 2009 and the mergers and acquisitions boom that followed the financial crisis.

The very top investment bankers in the US – the “masters of the universe” – can expect to collect $5m-$10m (£3.7m-£7.5m) this year, according to pay experts. The huge payday is due partly to the damage wreaked by the pandemic, as the crisis has forced a wave of takeovers and mergers.

The banks that advise on such deals – which have included US private equity group Clayton, Dubilier & Rice’s £7bn takeover of Morrisons and the London Stock Exchange’s £20bn purchase of Reuters’s owner, Refinitiv – collect a percentage of the total transaction for their trouble. They also collect fees for advising on flotations, private equity buyouts, and debt offerings.

As well as the flurry of mergers and acquisitions (M&A), there was also a 64% increase worldwide in the number of initial public offerings (IPOs) to 2,388 in 2021 over 2020, according to a study by Ernst & Young.

The biggest paydays are expected in the US, where the deals completed so far this year have totalled $2.3 trillion – a record high, according to Refinitiv data.

Goldman Sachs, which had already raked in $11bn in fees by the end of September, is expected to increase its bonus pool by 50%, while rival Wall Street bank JP Morgan may inflate its bonuses by 40%, according to sources last week.

David Solomon, Goldman’s chief executive, told staff at the bank’s October results announcement that they could expect bumper bonuses. “We are a pay-for-performance culture, and there’s no question that people are performing,” Solomon, who moonlights as a club DJ with the stage name D-Sol, said.

Solomon, who swallowed a $10m pay cut in January over the 1MDB scandal in Malaysia, received a share-based bonus worth up to $30m to be paid in 2026. The bank said the awards “ensure leadership continuity” and “enhance retention in response to the rapidly increasing war for talent”.

JP Morgan gave its chief executive, Jamie Dimon, a “special award” of 1.5m share options this summer, which could be worth as much as $49m over 10 years.

Last week the largesse was extended to Daniel Pinto, the bank’s chief operating officer and president, who is seen as the mostly likely successor to Dimon. He was granted a “retention planning” share award worth up to $25m on top of his $24.5m pay in 2020.

While they may not collect bonuses as large as those of their New York cousins, hundreds of London bankers will also take home millions when bonus season arrives in early January. Some of the city’s luxury car dealers say they are preparing for possible fat-wallet splurges by increasing stock availability.

Boutique bankers are expected to be the biggest beneficiaries in London as regulations introduced after the 2008 financial crisis prevent large banks from offering bonuses of more than 100% of fixed pay (or double that with shareholder approval).

The smaller, mostly Mayfair-based, boutique advisers are not covered by the rules, and have regularly paid out huge amounts.

Robey Warshaw, the bank that former chancellor George Osborne joined as a partner this year, has paid out £207m in profits to its three partners (before Osborne joined to make it four) over the past six years, according to accounts filed at Companies House. Sir Simon Robey, the majority shareholder who has been described as the City’s “trillion-dollar man” for the cumulative size of the megadeals he has worked on, has only collected £137m over the past seven years.

The firm has yet to file this year’s accounts, but Robey is among those named as advisers on the LSE deal to buy Refinitiv, in which bankers, lawyers and other advisers are set to collectively earn a cool £830m.

Source: The Guardian

Ph: Reuters

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