Bonus: Fat payouts to make 2018 a Happy New Year for investment banks
By Sneha Shah & Rica Bhattacharyya
MUMBAI: With the return of a booming primary market, million-dollar investment bank bonuses are expected to be back with a bang. Global and domestic investment banks in India have earned the most fees in the past five years in 2017, making a strong case for big annual payouts, industry experts and headhunters said.
Investment banks in India earned around $444 million in the year to date compared with $344 million in fees in 2016 and $364 million in 2015, thus making 2017 the highest grosser after the boom years of 2008-13, according to Dealogic, a global data provider. With days to go before the new year, bankers are rushing to close deals and the number could go up further, experts said. Some have doubled their income from the Indian market, raising expectations that after years of indifferent paydays, this year will be a bonanza. “The market has been good this year and that should reflect in the revenues and compensation,” said the HR head of a foreign bank, seeking anonymity.
Star bankers are hoping to take home million-dollar bonuses on top of base pay of $200,000-800,000. “Some of the best performers who have met their revenue targets will be rewarded handsomely,” said another banker with a global bank. Compensation at global banks is broken up into a fixed component and a variable bonus.
“Bonuses are expected to be much higher this year on the back of revival of capital markets and a large number of PE deals,” said K Sudarshan, managing partner at executive search firm EMA Partners India.
High Fee Income Across the Board
“However, whether this will translate into a million dollars, one has to wait and see. More than hefty cash bonuses, there could be huge stock components and restricted stock units (RSUs).
This has been a great year for I-banks but one has to see it in the context of severe pressure of capping compensation and bonuses in many MNCs. However, there will be a strong comeback,” said Sudarshan of EMA Partners India.
The banks that have earned the most fees this year are JPMorgan ($70.98 million), Citibank Capital Markets ($29.89 million), Axis Bank ($27.30 million), Goldman Sachs ($19.85 million) and ICICI Bank ($19.66 million). Others such as Credit Suisse, Morgan Stanley, Kotak Mahindra Capital Co, Bank of America Merrill Lynch and Standard Chartered Bank have also made it to the top 10 in terms of core investment banking fees in Dealogic’s league table.
Core investment banking fees include earnings through equity capital market (ECM), debt capital market (DCM) and merger and acquisitions (M&A) advisory. Annual payouts for most global banks take place in January and February while domestic banks announce annual bonuses in June.
None of the global banks, which lost a lot of business to their domestic peers, handed out seven-figure bonuses to employees last year. Most cut payouts, some even by half, I-banking sources said.
Equity market deal volumes in 2017 rose three times to $30.38 billion from $10.09 billion in 2016, data showed. Around 270 ECM deals were executed in the year, up from 154 in 2016. Of this, as many as 153 were initial public offerings (IPOs), raising $11.6 billion, a 74% rise from the previous year, according to an EY report. The stock market has risen by 27% so far this year, giving companies a broad window to raise capital.
Selective M&A deals, driven by record private equity and venture capital investments of $23.3 billion through 537 deals, also led to the surge.
“This has been one of the stronger years for I-banking,” said Anshul Lodha, director at recruitment agency Michael Page India. “More so on the capital market side that fetched big business and fees with the huge number of IPOs and QIPs (qualified institutional placements). The advisory market too was buoyant with an estimated 20-25% increase in fees. All this is expected to lead to heavy bonuses this year.”
During 2013-2017, investment banks in India saw deal volumes plunge, leading to shrinking fees. This took a toll on headcount in most global banks that were forced to lay off people and move coverage out of India. Some banks deferred bonuses while others offered equity in lieu of cash payouts. Domestic banks meanwhile hired carefully and managed their teams with minimum pay hikes.
For an industry marred by almost non-existent capital market business in the past few years, 2017 came as a relief, with high fee income across the board in investment banking. “Expected high bonuses would not only help retain current employee base but also attract new talent to the industry which faced steady decline in headcount in the past few years,” Lodha said.
The total headcount in Indian investment banks shrunk to around 700 from more than 1,000 between 2012 and 2017, with some taking up corporate jobs and others moving out to start on their own, according to data from Vito India, a domestic headhunting firm.
To be sure, not every bank has performed well. Some boutique and standalone advisory firms have seen a dip in fee income over the previous years and that will lead to bonuses remaining flat.