As Wall Street’s biggest banks prepare to report fourth quarter earnings for 2011, many analysts expect the results to cap off a horrible year — at least by their formerly high-flying pre-recession standards. As a result, bonuses, which are tied to performance and typically represent the bulk of bankers’ compensation, are expected to be sharply lower. And with the economy still fragile and Europe’s debt crisis casting a pall over the biggest banks, the mood on Wall Street will likely remain glum for some time. Throw in the prospect of stricter regulation, as the Dodd-Frank financial reform law finally gets implemented, and new global rules requiring banks to hold more capital, and it’s fair to wonder whether Wall Street’s boom times are over, at least for the foreseeable future.
“It’s likely 2011 will be the worst year for revenue growth for the banks since 1938, and so far 2012 isn’t feeling much better,” Michael Mayo, an analyst with Crédit Agricole Securities, told The New York Times. “The industry simply grew too fast over the past two decades and now it’s downshifting. This process will take time, but the hit to revenue is happening now.”
Bank employees will feel the pain in their end-of-year bonus paychecks, which will start to be doled out later this month. Wall Street employee bonuses could fall as much as 30% this year, according to compensation experts cited by the the Times. Many of Goldman Sachs’s 400-plus partners — members of the most rarefied club on Wall Street — could see their pay cut in half compared to last year, The Wall Street Journal reported Monday. Bankers and traders at Morgan Stanley could see their bonuses cut by 30% to 40% from last year, the Journal reported.
Of course, Wall Street’s elite will not be eliciting much sympathy this year, especially given that unemployment remains above 8% and millions of Americans are still feeling the pain of the recession. Although partners at Goldman Sachs could see their compensation cut in half this year, many will still walk with pay packages ranging from $3 million to $6.5 million, the Journal reported.