Some Wall Street bonuses to be cut in half
Drastic cuts are expected among credit-related company bonuses this year; some investment bankers and traders' payouts safe from market turmoil, report says.
NEW YORK (CNNMoney.com) -- Some Wall Streeters working in mortgage-related businesses will feel the blunt force of the global credit crisis this year when their annual bonuses will be cut as much as 50 percent, according to a report released Friday.
Overall, financial firms worldwide are expected to cut bonuses between 5 percent and 10 percent, according to the Options Group compensation report.
Profits at top-tier firms like Bear Stearns (Charts, Fortune 500), Citigroup (Charts, Fortune 500) and Merrill Lynch (Charts, Fortune 500) have been hit hard by at least $36 billion in writedowns in recent months.
"The money in the pool to pay the big bonuses will be less," said Sabin Danziger, a headhunter at Management & Capital Partners. "They can't manufacture money, so they'll pay less."
The hardest hit will be the salespeople dealing with mortgage-backed securities, according to Options Group director Eric Moskowitz. Their average bonus will be about $1 million compared with $2 million last year.
Most non-sales mortgage and credit professionals should see closer to a 30 to 35 percent cut in bonus payouts this year, Moskowitz said.
Fixed-income desks could see a 15 to 20 percent cut in bonuses, the report said.
In addition, Wall Street bonuses are likely to include a higher percentage of stock instead of cash, Moskowitz notes.
Stock payouts could reach as much as 75 percent of bonus payouts at under-performing banks this year, the Options Group said. UBS (Charts) has already announced that it is capping cash compensation at $750,000.
But investment bankers are likely to be protected from tumultuous market conditions, because 2007 is shaping up to be a record year for mergers and acquisitions. Goldman Sachs (Charts, Fortune 500) and Lehman Brothers (Charts, Fortune 500) are among the firms expected to pay out sizable bonuses, experts say.
"It's a tale of two cities. There are the haves and the have-nots," said headhunter Danziger. "Some bonuses will be good, particularly on the sell side. Goldman and Lehman are probably going to be good."
Investment bankers should receive bonus packages 10 percent higher than in 2006, according to the Options Group.
First-year Wall Street analysts, who receive about half of their overall pay in bonuses, are expected to receive packages of $60,000 to $80,000 on average, said Moskowitz.
Managing directors at top-tier investment banks, whose bonuses make up about 90 percent on their salary, should see a payout of between $2 million and $2.5 million, Moskowitz said.
Commodity sales people and traders will receive bonuses about 15 to 20 percent higher than last year, the Options Group said, "as global demand for all kinds of commodity products increases exponentially."