The roaring return of bonus expectations at JPMorgan, Bank of America (& Citi, maybe)
If you think your bonus is likely to be down this year, you may well be right. However, you may also be stuck in the third quarter mindset, because as of last week - two thirds of the way through Q4 - a veteran banking analyst thinks things are actually looking pretty good.
Dick Bove, a senior banking analyst at Odeon Research has taken a long look at data on Bloomberg. Bove notes that the biggest US banks, which were only recently talking down their pipelines and sounding cautious on the outlook for 2024, have been undergoing a renaissance in their investment banking divisions since October, particularly when compared to the terrible fourth quarter of last year.
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Some of the mightiest recoveries have happened at JPMorgan and Bank of America, where deal volumes in some businesses have gone through the roof. At JPMorgan, for example, Bove says EMEA equity capital (ECM) market deals by volume were up 675% year-on-year in October and November 2023 versus the same period of 2022; at Bank of America, global M&A deals were up 630% by volume over the same period. Citi's US ECM bankers didn't do badly either, with deal volumes up 450% year-on-year.
It's not too late for this to make a difference to US banks' bonus pools. Matthias Schwarz, the former head of EMEA credit trading at Bank of America who is now offering his services as a bonus whisperer, says US banks typically do a first cut of the bonus pool in early November, before mostly finalizing it in mid-December.
A late revenue resurgence is unlikely to dramatically increase bonus pools, but it can make a difference. When Royal Bank of Canada announced its year-end results last week, it revealed a 36% year-on-year increase in net profits in its fourth quarter (ending October) and a 6.7% increase in its spending on variable compensation. The Canadian bank won't actually announce bonuses until next week, but some of its London-based bankers tell us they're feeling optimistic. "Q4 was actually not bad," says one. "The general expectation is that bonuses will be down, but not horrific."
The big question this year is what happens to bonuses at Goldman Sachs, where there's been grumbling after meager payouts last year. Unfortunately, Bove's Bloomberg figures suggests Goldman's bankers don't have much reason for a rebound in expectations. Based on the chart below, Goldman's APAC equity and debt capital markets bankers might want to write their bonuses off now; only its US ECM and EMEA leveraged finance professionals have reason for renewed hope.
Bove's observations come after Citi CEO Jane Fraser said things are picking up in debt capital markets. However, Bove's figures suggest some areas of Citi's DCM business are doing better than others. Bove says Citi's involvement in Asia ex-Japan bond issuance was up nearly 300% year-on-year in October and November, that its US high yield issuance was up 44% and that EMEA leveraged finance revenues were up 225%. But measured in terms of volume, Citi's deals in US investment grade, US leveraged finance and US asset backed structured products all fell.
Across the industry as a whole, Bove says four things stood out in October and November versus last year: M&A was back; ECM was back in the US and EMEA; US high yield was back; and leveraged finance was back in EMEA, but not in the US where it's being stifled by the new proposals on large banks' capital requirements from the Federal Reserve.
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