Premiums are expected to decline at most major European and US investment banks in 2022 as they balance costs against lower revenues in a challenging macro environment.

Russia’s invasion of Ukraine, accompanied by interest rate hikes, ended a the boom in equity underwriting and M&A advisory revenue, which has pushed bankers’ bonuses to record highs in 2021. Rising inflation and slowing economic growth will further limit the ability banks to earn big and pay big in 2022.

Based on first quarter revenue and cost trends, incentive funding for major investment and commercial banks is expected to fall 5% to 10% in 2022, with investment bank underwriting desks seeing declines of up to at 40%, Johnson Associates estimated. Lower revenues will be the main driver of Direct cuts to performance pay, but inflation will make matters worse, the financial services compensation consultancy said in its latest industry report.

After “an incredibly good year,” underwriting revenue “tumbled off a cliff” amid a consulting downturn in the first few months of 2022, Johnson Associates chief executive Alan M. Johnson said in a statement. an interview.

The war in Ukraine has hit equity underwriting revenue particularly hard, with commissions falling 80% year-over-year in the first quarter from record growth rates in 2021, according to company data. financial market information Tricumen. The IPO market ground to a halt, with no new listings on the New York Stock Exchange for the first time since 2008, Tricumen said.

First-quarter underwriting revenue for most of the world’s largest investment banks was significantly lower than a year ago. Banks sampled included Bank of America Corp., Citigroup Inc., The Goldman Sachs Group Inc., JPMorgan Chase & Co., Morgan Stanley, Barclays PLC, BNP Paribas SA, Credit Suisse Group AG, Deutsche Bank AG and UBS Group AG. AConsulting and trading delivered a mixed picture to companies.

Trading revenue held up well in early 2022 thanks to greater market volatility, which will be reflected in changes to incentive compensation, Johnson said. While the overall trend in 2022 is down, there will be divergence between banks based on business mix, Johnson said.

Johnson Associates expects 2022 incentive funding to drop 35% to 40% or more at investment banking underwriting desks. Funding could drop to 20% in consulting. Fixed income and equity trading desks, on the other hand, are expected to see increases of up to 20% and up to 10%, respectively, due to increased client activity amid market volatility this year, according to Johnson Associates.

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While there are differences in how premiums are designed and calculated at U.S. and European investment banks, all have successfully matched expenses to income over the past few years, said Darko Kapor, partner at Tricumen, in an interview. This implies that banks would seek to cut costs, including compensation and benefits expenses, as revenues weaken this year.

In the first quarter, “most banks – even those that typically initial compensation and bonuses accrued in the first half of the year – maintained tight cost control,” Tricumen said in its industry report for the period.

The revenue outlook for 2022 is bleak, with war in Ukraine and tightening central bank policy weighing on underwriting and advisory revenue. Income from equities and fixed income, currencies and commodities trading will also be affected, research firm Coalition Greenwich said in a second-quarter report. The company, which is owned by S&P Global Inc., forecasts a 16% decline in total revenue for the top 12 global investment banks. This sample includes the banks mentioned above as well as HSBC Holdings PLC and Société Générale SA.

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All major U.S. banks except JPMorgan cut compensation and benefits costs in the first quarter. Goldman Sachs booked the biggest cut at 32% year over year. JPMorgan’s 2% cost increase in the first quarter was just a fraction of the 19% hike made in the first quarter of 2021. JPMorgan and Bank of America declined to comment on 2022 bonus compensation plans Goldman Sachs, Citigroup and Morgan Stanley were not immediately available for comment.

Deutsche Bank, which increased investment banking compensation costs in the first quarter due to stiff competition for talent in the industry, expects to maintain adjusted costs for the full year in 2021, a holder said. speak to S&P Global Market Intelligence.

Compensation costs at Credit Suisse rose in the first quarter due to a change to its bonus compensation formula, but the bank does not expect a change in the economic value of the rewards, chief financial officer David Mathers said during a briefing. a presentation of the first quarter results on April 27. The bank reduced cash bonuses and increased the amount of deferred variable compensation following the Archegos and Greensill scandals in 2021. This year, the bank returned the deferred and cash components of bonus payments to normal, a Mathers said. A Credit Suisse spokesperson declined to comment on the bonus compensation plans beyond statements by the chief financial officer.

BNP Paribas, Barclays and UBS declined to comment on 2022 bonuses.