Wall Street Bonus Redux

A: As I said in January, "Bonuses: It's 2009 That Will Hurt More". What I should have said is, "Bonuses: It's 2009 That Will Hurt More Unless Taxpayer Money is Used To Recapitalize Firms, Then It May Not Get So Bad". I guess I need to work on my prognostication skills. The very idea that taxpayer money is being used to save the financial sector from systemic collapse, and yet dividends continue to be paid out and bonuses will not be cut as much as if this money weren't injected, is unnerving to say the least. I'm a wall streeter, always have been and probably always will be, but my life on wall street is as an independent equities trader. I do not work for any firm and therefore I do not receive any bonus. Expect 2009-2011 bonuses to be bad, but perhaps not as bad as expected now that Uncle Sam came to help. I'm sure the public outrage will be strong on this one.

The money quote from Bloomberg's, "Wall Street's Top Executives Face 70% Bonus Cuts, Study Says":

For workers whose compensation isn't disclosed, Johnson estimates that investment bankers and employees in the fixed- income departments will have bonuses reduced between 35 percent and 45 percent this year. People who work in prime brokerage departments will have their year-end awards cut by 15 percent to 20 percent, the report estimates.

"However, thanks in part to the financial bailouts and mergers we've seen recently, the decline in incentive payments won't be as drastic as first thought," Johnson said in the report.

I'm on record for estimating that bonuses in 2009 will be down approximately 40%-50% from the 33.2Bln doled out last year! The question should be, in what form will bonuses be structured and to whom will bonuses go to! One thing is for sure, as consolidation in the industry closes, the worst of the job cuts will be announced.

Here is a chart from the Bloomberg piece on which business areas will see what bonus reductions:

Wall Street bonuses are paid out based on generated revenue. Which begs the question, how many generated revenue in 2008? All I know is, this year has been mired in writedown after writedown, loss after loss, so bad that the government had to step in with bailouts, forced marriages, and taxpayer rescue plans. What happened to accountability? I understand the need to retain talent, and in doing so, handing out bonuses to those that did make money or bring too much to the table for the firm to lose. But across the board? I think this is a bit misleading, I think many more jobs are going to be cut on wall street, and I think bonuses for the average employee will be down more than people think. Retention of talent and acquisition of talent will be where most of the bonuses are paid, in my humble opinion.

Regardless, the insanity is over and it ain't coming back for a looooong time. Wall street is forever changed, the securitization model is all but extinct for now with non-prime MBS issuance at ZERO for Q3, investment banking is all but dead, the last two investment banks are now commercial bank holding companies regulated by the fed (Goldman, Morgan), balance sheets are still impaired, leverage is still being taken down, and heavy regulation is upcoming. We are at now now. The fallout from this will be felt in 2009 & 2010 here in Manhattan, when reality sets in for many used to extravagant salaries to pay for their extravagant lifestyles. This is what leads to over-leveraging in your personal life, spending beyond your means, thinking the party will last forever, and finding yourself swimming naked and forced to sell assets to 'right the ship'. I think the worst of this real world deleveraging in Manhattan is ahead of us, not behind us.

• Add to del.icio.us
• Digg this!
• Add to Technorati
• Add to Reddit