Moment of truth for crazed banking bonus expectations

As some of you pointed out at the end of last year, our bonus expectations survey - which had 1,700 responses - suggested that respondents had become detached from reality. The average person who answered the survey thought his/her bonus would increase by 50% year-on-year. At Citi, people told us they expected their bonuses to rise by 73%. 

Those expectations are about to be tested by reality. This is the week when various US banks report their fourth quarter results and when some announce bonus numbers to staff. 

Goldman Sachs will begin announcing its bonuses on Wednesday. Goldman partners will be told first, and other staff will find out on Thursday and Friday. Citi is expected to announce this Thursday (a day later than initially supposed). JPMorgan typically announces bonuses around the 17th January, but will announce on the 22nd this year. Bank of America will announce either late next week or early the week after. 

Given the extravagance of expectations and the bank's potential to miss its targets, Citi's bonuses will be watched particularly hawkishly. Citi declined to comment on the timing of its bonus announcements, but sources suggested that big bonuses will be necessary to stop its people from leaving. "Citi's in a vulnerable position," said one senior banker. "It's clear that many people there aren't happy with new management and that they'll need to be incentivized to stay. People are waiting until bonuses have been announced to make decisions, but a lot of people who would never have considered leaving Citi in the past seem a lot more open-minded. "

Bloomberg reported this week that JPMorgan plans to increase bonuses by 15% and that Bank of America plans to increase bonuses by 10%. 

The only major US bank to have announced bonuses so far is Morgan Stanley, where numbers have been mixed. While some more senior Morgan Stanley bankers have reported bonus increases of 30%, juniors and directors at the bank seem less happy. "Morgan Stanley is a top-heavy organization where more people are competing for smaller pies," one director there told us. In technology, there are complaints that some Morgan Stanley developers got nothing at all. 

Speaking off the record, one senior headhunter said this is destined to be a disappointing bonus round: "Caution has kicked the final bonus pool allocations." A macro headhunter said banks will need to pay macro traders well to retain them despite last year's poor revenues on rates desks, and that this could deplete bonuses in credit and financing. In investment banking, one senior US headhunter said the spread is likely to be wide, with some up 30-40% and others up 0.5% or less. 

Bonuses that diverge significantly from expectations could lead to increased willingness to move jobs once bonuses have actually been paid. Payment typically occurs two to three weeks after announcement dates. - Expect moves from mid-February on. 

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