Wall Street bonuses are expected to decline for the third consecutive year, reflecting a period of busted mergers, limited trading activity and muted hedge fund returns.
The payouts are projected to be from 5 to 10 percent lower this year, according to an annual report to be released on Monday by Johnson Associates, a compensation consulting firm. Bonuses fell about the same amount last year from 2014. The projection confirms a report last month by the New York State comptroller that said firms set aside 7 percent less for bonuses through the first half of this year compared with last year.
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While mergers and acquisitions have been active (and even hit record levels in 2015), the bankers who advise on the deals get paid largely when the deals are completed. This year, antitrust officials thwarted a number of large mergers, including Halliburton's $35 billion bid for Baker Hughes, as well as the consolidations of the health insurance companies Anthem and Cigna, and Aetna and Humana.
Pfizer and Allergan abandoned their enormous deal after the Treasury Department announced new tax rules, killing $200 million in fees that the bankers were supposed to collect.
In addition, choppy markets damped stock trading activity and prevented skittish companies from making their debuts as public companies, except for a few prominent offerings. Investors dumped hedge fund holdings because of poor returns and high fees.
Alan Johnson, the founder of Johnson Associates, describes this pattern as a "malaise," and one that is unlikely to reverse itself anytime soon.
"I don't see it changing for the next year or two, either," he said in a phone interview. "The pressures in the industry on profit and fees are going to continue, and I think pay will likely continue to decline in 2017."
Even more than in past years, competitors and clients pressured banks to reduce fees, as there was more disclosure around what companies can and do charge clients, Mr. Johnson said.
In March, the state comptroller's office said that the average bonus for securities industry employees in the New York City area in 2015 was $146,200, while the average salary was $388,000. Both figures declined from 2014, but the compensation was still far higher than in any other industry in the area.
According to the Johnson Associates report, some of the deepest cuts in bonuses this year will be among investment banking underwriting, hedge fund and equities professionals.
Equity underwriting bonuses could be more than 20 percent lower compared with 2015.
Within sales and trading, Johnson Associates said that there were lower levels of client activity, especially in equities, meaning bonuses could be from 5 percent to 15 percent lower than last year.
Johnson Associates expects merger advisory bonuses to be about 10 percent lower.
Nevertheless, there are more deals in the wings. Research by PitchBook found that through the third quarter of 2016, there was a record number of transactions valued at $10 billion or more. During the first nine months of the year, 31 such deals were signed, compared with 23 in all of 2015 and 16 in 2014. If this year's deals have better luck with regulators, banks could enjoy a payout later this year or next.
Private equity bonuses will be little changed this year, according to the report, as firms were able to increase their assets under management but experienced "mediocre returns."
Retail and consumer banking was not quite as bleak. There, bonuses could actually gain as much as 5 percent over the previous year. That area of finance has benefited from deposit and loan growth as the economy recovers.
Johnson Associates has been publishing its report annually for about 15 years. The consultants pore through public filings and interview from 30 to 50 clients to produce the results.
Some of the challenges facing banks could soon reverse if interest rates go up meaningfully. With near-zero rates for almost a decade, banks have been able to lend money inexpensively but with lower returns than they received historically. If that dynamic reverses, it could be a boon to the industry, as long as the broader economy remains intact.
"It could be water on the fields for many of these businesses in isolation," Mr. Johnson said. "Now the caveat is, what happens to the economy when rates go up?"
Economic challenges are the reason European bank employees are worse off than American ones. And Britain's vote over the summer to leave the European Union, known as "Brexit," did not help European bank employees' situation, Mr. Johnson said.
A portion of a banker's total compensation is based on how well his or her company has been doing in the stock market. The stock prices of some European banks, such as Deutsche Bank and Credit Suisse, have declined about 50 percent each over the last year as they have grappled with government fines, increasing competition and greater regulation.
Executives at those banks and others are talking about how to refocus their businesses to become more profitable.
In New York, profit was not an issue. The securities industry generated $9.3 billion in profit during the first half of 2016, the comptroller's report showed, on track to surpass the $14.3 billion made in all of last year.
But with thousands of job cuts and lower compensation for those in securities, it has become clear that the focus of those profits is primarily preservation, rather than making bankers wealthier.