Wall Street Bonuses To “Fall Off Cliff” As Dealmaking Market Freezes

Bonuses for Wall Street professionals are set to decline sharply following the markets for initial public offerings, and mergers and acquisitions have fallen off a cliff in 2022.

According to Bloomberg, Wall Street has been battered by stock, bond, credit, and crypto volatility, soaring inflation, and an aggressive Federal Reserve tightening monetary conditions that risk a 2023 recession, which has soured investor sentiment towards new deals. 

A Wall Street street sign in front of the New York Stock Exchange in New York. Photographer: Michael Nagle/Bloomberg

The decline in dealmaking could leave bankers who underwrite equity or debt offerings with the most significant declines in forecasted payouts this year, expected 40-45% lower than 2021 payouts, while those who advise on the M&A side can expect 15-20% lower payouts than last year, according to a new report published by Johnson Associates Inc, a compensation firm based in NYC. 

“It’s a cyclical business, and it fell off of a cliff this year,” said Alan Johnson, managing director of Johnson Associates. “There will be a lot of unhappy people by the end of the year.“

Investment-banking revenue plunged 45% at the five biggest Wall Street firms in the first nine months of this year. High inflation, cross-asset volatility, and the Fed’s jumbo-size rate hikes crushed dealmaking, including initial public offerings. 

According to Refinitiv data, total IPO volumes crashed in the first nine months of the year compared with last year. US tech companies’ offerings fell to the lowest level since the Lehman crisis in 2008. 

Johnson said, “the industry was at a bubble level last year, referring to high asset valuations due to the Fed juicing markets with quantitative easing. 

“The bubble burst, and now we’re having a hangover,” he warned. 

The report said bank executives would also see annual bonus declines of 25-30%, while asset managers will be around 20-25% less than last year. 

That said, despite all the gloom on Wall Street, fixed-income traders and salespeople can expect to see bonuses jump 15-20%. 

At the moment, investors are risk-averse as they seek companies focused on profitability instead of rapid growth. The downturn in dealmaking has also crushed the market for special purpose acquisition companies, also known as SPACs. 

Dealmaking conditions will only improve after the Fed pivots from the most aggressive hiking cycle since the early 1980s. But for that to happen, there must first be a pause in the hiking. 

The moment the Fed pauses, the market immediately prices in the coming cuts (and rises double digits). pic.twitter.com/bTCZKxBxTM

— zerohedge (@zerohedge) November 15, 2022

 Not too long ago, we pointed out that bonuses at top European banks were also getting slashed.