Top Wall Street banks are on course to pay their dealmakers more than at any point in at least a decade, with M&A bankers set to pull in 30% higher compensation than last year as investment banking fees hit new highs.
JPMorgan, Goldman Sachs and Morgan Stanley have put more aside in compensation for their investment bankers during the first nine months of 2021 than they have in years. Banks are set to pay big bonuses for key staff and are embroiled in a battle for talent amid record dealmaking fees, which is pushing compensation costs to levels last seen in the boom years before the 2008 financial crisis.
Compensation costs in JPMorgan’s corporate and investment bank have hit $10.7bn so far this year, an increase of 11% on 2020. This is the highest number since it combined its corporate and investment banking units in 2010. Morgan Stanley has put $7.8bn aside for compensation within its investment bank in the first nine months of 2021, the biggest number since the glory days of 2008 and a rise of 15% on last year. Goldman has put aside $14.5bn in compensation — an increase of 34% on last year and the highest number since 2009.
These increases follow double-digit rises last year as both trading and investment banking revenues surged.
Jeremy Barnum, chief financial officer of JPMorgan, said the compensation costs were going up in its investment bank. “We obviously pay for performance,” he said during a call with analysts. “Realistically, expenses are going to be up next year,” he added.
Goldman Sachs chief executive David Solomon said there was “cost pressure” on pay and that the bank was “extremely focused on it”.
“We are a pay for performance culture and there’s no question that our people are performing,” he said. He added that it was being managed in a way that can “show real operating leverage to our shareholders”, but that Goldman would “pay our people exceptionally for exceptional performance.”
Fees from M&A advice hit new highs at Citigroup, JPMorgan and Morgan Stanley during the third quarter, and executives said during earnings calls that there was little sign of the boom slowing down.
JPMorgan’s M&A fees have swelled 84% to $2.8bn so far this year, while Morgan Stanley’s are up by 105% to $2.4bn and Citi’s have increased 57% to $1.2bn and Goldman’s by 104% to $4bn. Overall investment banking fees have hit $93bn during the first nine months of 2021, according to data provider Dealogic, which is a record at this point in the year.
“2021 will be a very strong year for investment banking and we anticipate firms paying bonuses that align with individual, group, and overall firm performance,” said Chris Connors, vice president at Wall Street compensation consultants, Johnson Associates.
While M&A and equity capital markets dealmakers will be the big winners, banks are unlikely to match bonuses to the stellar performance this year, he added.
“Banks typically overlay business unit results with overall firm results and we expect overall firm bonus pools to be +15% vs 2020. With that in mind, we expect incentives to increase 30%+ in equity underwriting and advisory,” said Connors.
Bank executives have pointed to the need to pay key staff as a battle for talent has erupted throughout 2021. Citigroup has hired 200 investment bankers so far this year, including senior dealmakers from rivals Goldman Sachs and JPMorgan, while chief executive Jane Fraser defended a new bonus programme for its key employees by pointing to a “pretty tight talent market right now”. Bank of America executives pointed to a “war for talent” during its earnings call.
JPMorgan’s 66,267 employees within its corporate and investment bank is an increase of more than 4,400 people at the same point in 2020, while Goldman’s employee numbers swelled by 2,100 people to 43,000 compared to last year.
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