Foreign-exchange traders in London are set for the biggest drop in bonuses among bank employees as regulators toughen scrutiny in the wake of scandals, according to a survey by Emolument.
Currency traders are likely to see a 43 percent decline in payouts for 2014, compared with a 41 percent jump projected for colleagues on commodities desks, according to estimates by the salary benchmarking website. The average bonus paid to currency and commodities traders for last year was 134,000 pounds ($218,000) and 106,000 pounds, respectively, it said.
The $5.3 trillion-a-day currency market is under investigation amid allegations that dealers leaked confidential client information and colluded to rig benchmarks. Revenue from foreign-exchange trading is also being squeezed amid weaker client activity, as regulators strive to rein in excessive compensation to prevent another financial crisis. The European Union has banned bonuses exceeding more than twice fixed pay.
“The foreign-exchange market has been tough and there are a lot of traders out there without jobs,” said Jason Kennedy, chief executive officer of recruitment firm Kennedy Group in London. “There is no need to pay because they aren’t going anywhere and also after the noise with the scandal, banks prefer to keep their head below the parapet and therefore by not paying even ordinary bonuses they are avoiding any attention.”
Barclays Plc (BARC), Citigroup Inc. (C) and Deutsche Bank AG are among the world’s biggest banks that could face “material and widespread” fines for misconduct such as the alleged rigging of currency rates, Fitch Ratings said in a statement on Sept. 15. Barclays, Deutsche Bank, Goldman Sachs Group Inc. (GS), Royal Bank of Scotland Group Plc and UBS AG (UBSN) account for about 43 percent of foreign-exchange trading by banks.
Bonuses may also be under pressure as earnings decline. Revenue earned from Group of 10 nations’ currencies was the “poorest line of business” for the world’s 10 largest investments banks in the first half, with the biggest drop since 2008, according to analytics firm Coalition.
Within banks’ fixed income, currencies and commodities divisions, credit traders are set for a 17 percent bonus increase for 2014, according to Emolument estimates. Rates and emerging-markets traders may see a drop of 20 percent and 31 percent, respectively, the survey showed.
“Low volatility levels across the currency markets are putting intense pressure on the upcoming bonus pool,” Emolument CEO Robert Benson said by e-mail. “We expect to see intensely polarized businesses — at one end sky-rocketing results on the deal-making side and currencies at the other, probably negotiating internal subsidies as we speak.”
The bonus gap within banks’ equities divisions ranged from a 35 percent drop for derivatives traders to a 33 percent increase in prime services with customers such as hedge funds. Mergers and acquisitions and equity capital markets staff may receive an increase of 26 percent and 39 percent, respectively.
While banks including Credit Suisse, Barclays, JPMorgan Chase & Co. (JPM), Morgan Stanley (MS) and Goldman Sachs have all cut or exited commodities businesses, remaining employees may see higher bonuses in the face of a recovery, according to Kennedy.
“Commodities had a horrible year in 2013 and banks closed a lot of businesses, but it has had a revival this year,” he said. “This year, banks do not want to lose staff to hedge funds, so they are paying more.”
Bonuses at securities firms are typically paid from about early February for performance for the previous year. Emolument derives its industry forecasts from data collected through 2,600 individual salary entries in the U.K. as well as provider Coalition. It takes into account salaries and bonuses for employees ranging from analysts to managing directors.