Wall Street Set for Bountiful Bonuses

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November 7, 2006, 6:32 am

With days like Monday, when a barrage of multibillion-dollar corporate deals were announced, it is hardly surprising that investment bankers are doing well. But just how well? Consider this: According to one consulting firm, bankers are likely to see their end-of-year bonuses jump 20 percent to 25 percent this year from 2005. For managing directors at top investment banks, the increases are expected to be even higher.

Alan Johnson Associates, an executive compensation consultant, estimates that the average managing director at a top-tier bank will get an annual bonus of $1.7 million, up from $1.2 million a year ago. That is a jump of nearly 42 percent. While that may sound like a lot, The New York Times' Jenny Anderson reports that, for these bankers, the increase will effectively put them "back where they started before the technology bubble burst and their pay tumbled nearly 50 percent."

Bloomberg News examines this year's bonus prospects a different way. It reports that the five largest investment banks — Goldman Sachs, Morgan Stanley, Merrill Lynch, Lehman Brothers and Bear Stearns – are set to reward staff with a record bonus pool worth $36 billion.

In London, top performers can also expect an overall bonus increase of at least 25 percent from last year, although the pool is still significantly smaller. The city's investment bankers, traders and hedge fund managers will share $16.7 billion in bonuses this year, according to The Center for Economics and Business Research.

On Wall Street, it will again be the traders, who make investment bets for their firms, and those who operate in the complex world of structured products and derivatives, who take home the biggest checks this year, with top-end estimates in the range of $40 million to $50 million, according to The New York Times.

"Traders are making more than bankers and that will probably continue for one more year," Alan Johnson, the managing director of Alan Johnson Associates, told the Times. "Then it will be a horse race."

Bonuses aside, MarketWatch points out that investment banks in the United States outperformed their European counterparts in this earnings season. After strong results from investment houses in the United States, hopes had been high for a similar showing in Europe, but some disappointing data has left investors questioning why European firms weren't able to match their American peers.

On average, UBS and Deutsche Bank reported investment-banking revenues a couple of percentage points below year-ago figures, compared with the average 6 percent rise at peers in the United States with the same reporting period.

MarketWatch says that the disparity may be a result of different attitudes toward risk, exposure to rampant commodities markets, and might also be linked to Europe's long summer break in August.