Wall Street bonuses likely to plunge as trading revenue drops

By Olivia Oran

NEW YORK, Oct (HKSE: 3366-OL.HK - news) 15 (Reuters) - Wall Street bankers and traders are likely to get smaller bonuses this year as trading revenue plunges.

Goldman Sachs (NYSE: GS-PB - news) said on Thursday that it set aside 16 percent less money for compensation in the third quarter compared with the same period in 2014. The fourth quarter, when banks determine how much they will pay for holiday bonuses, may not bring much relief for employees.

JPMorgan Chase & Co (Xetra: 850628 - news) . CFO Marianne Lake said on Tuesday that "markets are pretty quiet" so far this month and analysts may be too optimistic in their forecasts for the last three months of the year. JPMorgan (LSE: JPIU.L - news) on average is expected to post a 13 percent gain in earnings per share in the fourth quarter, according to analysts polled by Reuters Estimates.

Goldman's total trading revenue dropped 15 percent in the third quarter because of a slump in fixed income, currencies, and commodities. Many investors are reluctant to take on too much risk in bonds and related derivatives until they have a better sense of when the U.S (Other OTC: UBGXF - news) . central bank will start raising benchmark interest rates.

Pay across Wall Street could fall about 10 percent this year, with traders taking the biggest hit, said Alan Johnson, managing director of pay consulting firm Johnson Associates. The weaker trading environment is hurting banks, as are the costs of complying with new rules imposed after the financial crisis.

Banks "are starting to restructure their pay strategy because five or six years after the crisis they have extra costs," Johnson said. "It (Other OTC: ITGL - news) 's just not working."

Those estimates are consistent with the numbers that Goldman Sachs is reporting. The bank said it set aside $287,778 per employee in the first nine months of the year, down about 10 percent from the same period last year.

Some signs of belt tightening at banks are already emerging. Contractors in the investment banking division at HSBC Holdings (HKSE: 0005.HK - news) Plc in London will see their pay cut by 10 percent amid sluggish deal activity, Reuters reported on Wednesday. JPMorgan has been cutting costs all year, and is even asking some employees to pay for their own cell phones, according to the Wall Street Journal.

Back in the first quarter, revenues were up substantially across Wall Street, allowing banks to set aside more for compensation - Goldman's pay pool rose by 11 percent as revenue rose 14 percent in the first quarter from the same period in 2014. Since then, revenue has slipped for two straight quarters, pulling compensation expense at the bank down by 1 percent for the first nine months.

Brian Kleinhanzl, an analyst with KBW, said he believes Goldman needs to do more on expenses to increase earnings going forward.

To be sure, not every bank will necessarily cut bonuses by the same amount, and declines can vary dramatically from one employee to another at the same bank. JPMorgan said on Tuesday that it has set aside 4 percent less for compensation for corporate and investment banking employees in the first nine months of the year compared with the same period in 2014. (Reporting by Olivia Oran. Editing by Dan Wilchins and John Pickering)