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Consultant: Wall Street Bonuses to Rise Less Than Expected

Friday, 17 August 2012 09:02 AM

Wall Street bonuses should rise moderately this year, but less than previously expected due in part to high-profile scandals at some big banks, according to a report released on Thursday by compensation consulting firm Johnson Associates.

The firm estimated bonuses will be flat and possibly rise by 5 percent across Wall Street, lower than a 5 percent to 15 percent increase Johnson Associates forecast in May.

The 2012 bonuses of senior executives will increase in a zero-to-10 percent range compared with the previous year. That is also below an earlier 5 percent to 15 percent estimate provided by Johnson Associates.

The reductions are due partly to weaker-than-expected revenue. Big banks, including Goldman Sachs Group Inc., Morgan Stanley and Bank of America Corp. have all outlined plans to cut costs further due to a weak outlook when they reported second-quarter earnings last month.

But Johnson Associates also highlighted recent Wall Street scandals as a reason compensation might be lower at some firms caught in the headlines.

For instance, Barclays Plc agreed to pay more than $450 million in June to settle allegations that it fixed the London Interbank Offered Rate, known as Libor. More than a dozen other banks are being investigated by regulators for possible Libor manipulation.

JPMorgan Chase & Co. has also been in the headlines for a bad derivatives bet that may cost the bank at least $6 billion, while Knight Capital Group Inc. required an industry rescue after bad software coding led the firm to post a $440 million trading loss. HSBC Holdings Plc and Standard Chartered Plc have also recently been accused of money laundering by U.S. government officials.

"Libor scandal, errant trades, and other high profile errors and losses weighs on an already hampered investor confidence, and payouts of firms experiencing specific issues," Johnson Associates said.

Trading divisions are likely to be the biggest bonus winners this year, according to the firm's estimates. Bond traders are expected to see bumps of 10 percent to 20 percent, while equities traders should see increases of 5 percent to 15 percent, Johnson Associates said.

The firm forecast bonuses will be stable at a minimum for all business lines except investment banking, where deal making has hit a tough patch. Johnson Associates estimates those bonuses will range from a 10 percent drop to a 5 percent increase.

Of eight investment and commercial banks for which Johnson Associates projected 2012 pay, just two are expected to report lower overall bonus pools than the previous year. Bonuses will remain flat for five out of the 10 asset management firms it covers and drop for just one.

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Friday, 17 August 2012 09:02 AM
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