Investment banks to reduce pay again amid increase in profits- report
A report in the Financial Times said investment banks around the world are due to reduce employee remuneration for the third straight year despite increase in profits. An analysis conducted by the news outfit on the quarterly reports of nine of the biggest US and European investment banks show that the lenders were set to cut their total pay by a 5% median in 2013. The reduction would cover salaries, bonuses and other benefits.
A combined USD 51.4 billion in overall pay was allocated by the lenders in the first nine months of the year. The amount was 5% less than the same period last year. However, profits had risen by a 10th in the same time period, the report said.
According to the Financial Times, the move highlighted the importance banks placed on shareholder returns than on employee remuneration. Tom Gosling told the news website, "Banks are continuing the trend of the last couple of years of realigning returns from employees to shareholders. They need to do this, as most banks are still delivering single-digit return on equity . . . and the industry continues to face significant regulatory challenges." Gosling is the head of the reward practice of PwC.
Investment banking returns have suffered in the past few years as lenders contend with stricter capital rules and a slowdown in the global economy. Lenders' moves to go to electronic and exchange-based trading have also dented returns, the report said.
After the dramatic reductions made in 2011 and 2012, the report added that bonuses for this year will also be decreased. The typical lender will reduce its overall bonus pool by up to 10%.
There is also a gap between European banks and US banks in terms of pay reductions. For the first three quarters this year, the Royal Bank of Scotland has allocated 27% less for investment bank pay while Deutsche Bank, Credit Suisse, HSBC, UBS and Barclays set aside anywhere from 5% to 17% less.