Bonuses at Goldman Sachs (and elsewhere) could be fraught this year
Whatever you do, don't suggest to Goldman Sachs' CEO David Solomon that this might be a difficult year. Even though sales and trading revenues at Goldman Sachs are likely to be down 10% in the third quarter, even though investment banking revenues still aren't back to their 10-year average, and even though there's geopolitical and macroeconomic uncertainty as we go into Q4, Solomon insists things aren't that bad. "I want to be clear, activity's good, clients need these services, activity is reasonable," Solomon declared yesterday. It's just that the third quarter of last year was exceptionally strong; if the third quarter of 2024 looks mediocre, it will be in that context.
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Despite Solomon's reassurances, a weak third quarter implies a difficult bonus round. This is the time of year when employee appraisals take place and when bonus allocation discussions begin. A weak quarter adds complexity.
Goldman Sachs has particular challenges relating to a $400m write-off in its consumer book, but other banks seem to be experiencing a softening too. Citi CFO Mark Mason said yesterday that the bank expects a 4% year-on-year decline in fixed income sales and trading revenues in the third quarter. Debt capital markets (DCM) activity is "solid," M&A activity is "good" but ECM is "under pressure," said Mason.
Allocating bonuses is always a balancing act. After a strong first half in which Boston Consulting Group says DCM revenues across the industry rose 55%, that ECM revenues rose 33% and that M&A revenues rose 8%, bankers will be hopeful of bonuses rising. However, with sales and trading revenues down, markets businesses won't be subsidizing any weak M&A and equity capital markets teams in the second half. Underperforming bankers will have to beg for crumbs from debt capital markets bankers instead.
The expectation is that M&A revenues in particular will pick up in 2025 once the US election is out of the way and rates (hopefully) fall. On this basis alone, headhunters say M&A bankers are already staking their claims to bonuses. However, while pipelines are full, actual fees remain weak. "We're hearing that the bonus round is not going to be great in M&A," says Barney Mundell at UK search firm Loxley Partners. "The pipeline hasn't been converted into fees, so this will be an excuse for banks not to pay."
Another headhunter is more frank in his verdict on the approaching bonus negotiations. "Bankers are going to be saying, 'You need to pay me because I have a shitload of business coming in 2025,' but management is going to be saying, 'There are no revenues,'" he says. The end of the year could be fun.
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