'Winners' will get lion's share of Wall Street's $32bn in bonuses

Banks operating with bullseyes on their chests are picking who to reward more carefully

Stephen Foley
Sunday 16 January 2011 01:00 GMT

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America's biggest banks will finalise their bonus pools for 2010 in the coming days, and while headlines are likely to show remuneration remaining broadly flat on a year ago, the figures mask a growing gap between the winners and losers on Wall Street.

The two most powerful investment banks, Goldman Sachs and Morgan Stanley, are expected to pay out about $32bn (£20bn) just between the two of them, with Bank of America, owner of Merrill Lynch, Wells Fargo and Citigroup, also reporting bonus levels as part of its annual results this week.

Analysts' estimates suggest the total money given over to remuneration will be the same, or less than 10 per cent higher, than for 2009, which could equate to lower average bonuses at firms, such as Goldman, which have hired aggressively in the past 12 months. They caution, however, that figures are hard to predict, particularly since banks may want to reflect some of the continuing public distaste for bumper payouts.

"Banks are operating with bullseyes on their chests when it comes to issues of pay," says David Wise, the director of practice development at the consulting firm Hay Group. "It used to be that a high tide lifted all boats, but this year banks are being more careful to differentiate according to the profitability of their businesses. What used to be more or less guaranteed is no longer a ticket to a seven-figure pay programme, except for a few top performers."

Goldman Sachs, which promised last week to reveal greater detail on the profit it makes from trading its own money, rather than from working on behalf of its clients – reports figures on Wednesday. According to a survey of analysts by Dow Jones, it could put aside roughly $16bn annual compensation for 2010, including over $2.9bn in the fourth quarter – about as much as in the same period a year ago. The bank points out that the figure is the total of regular salaries and benefits, as well as the bonus contribution.

For the first nine months of the year, Goldman's compensation accrual equaled $370,706 per employee, down sharply from the $527,192 the firm had set aside a year earlier.

According to some predictions, bonuses for traders working with equities, fixed income markets and derivatives could see their payouts plunge by up to a quarter. There has been a sharp slowdown in trading activity and tougher competition among brokers. Investment managers are likely to take the lion's share of any increases, while observers are split on the likely windfall for mergers and acquisitions advisers, after a year in which corporate dealmaking activity has been spotty.

Investors will have to wait to discover the pay handed to top executives, such as John Gorman at Morgan Stanley or Lloyd Blankfein at Goldman, in separate regulatory filings.

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