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Wall Street bankers could see their bonuses plunge by up to 30% in 2020

Published on June 15, 2020 - 2 mins reading time
Bank watch
The experts at Johnson Associates anticipate wide variations in variable compensation between establishments. Retail banking employees could be hardest hit, with bonus cuts of between 25% and 30%.

A very slow recovery for the US economy

FED Chairman Jerome Powell has called on elected officials to do everything in their power to speed up the economic recovery and limit the deleterious effects of a long recession on the most vulnerable populations. To date, Congress has provided nearly $2.9 trillion in budgetary support to households, businesses, healthcare institutions, states and communities, equivalent to nearly 14% of gross domestic product. For its part, the US Federal Reserve has taken a number of measures to support the economy: lowering interest rates, easing regulations to encourage bank lending, injecting liquidity into the financial system, etc.

Despite the efforts made, Jerome Powell indicated that the recovery of the US economy would be slower and more difficult. U.S. GDP fell by 4.8% in Q1 2020, the biggest decline since the end of 2008. Economists are forecasting an unprecedented fall of 30-40% in the second quarter.

Employees of major banks should expect their bonuses to plummet

The looming recession will cause bonuses for employees of major US banks to plummet, according to a study published on May 13 by US firm Johnson Associates. Based on Q1 results and the uncertain outlook for financial institutions, the experts estimate that their remuneration could fall by 30% compared with 2019.

Although the scenarios may change depending on the speed of economic recovery, retail banking employees will continue to be the hardest hit by the effects of the crisis. In asset management, hedge funds could see declines of between -5% and -25%, according to the report.

Variable compensation on the rise for traders

Unlike bankers, traders should see their variable compensation jump by 15-20%. Indeed, despite a highly volatile market environment, the major US banks performed well in Q1 compared with their European counterparts.

While traders seem to be benefiting from the health crisis, bankers are not. Institutions are working hard to reduce their costs, and sometimes the number of employees. According to data compiled by Coalition, the major investment banks have already reduced their workforce by 5% in Q1 2020.