Goldman and JPMorgan plan bumper bonuses for investment bankers

Goldman Sachs and JPMorgan Chase are preparing to pay out bumper bonuses to their investment bankers following a record year for deal activity on Wall Street.

Goldman is considering increasing its bonus pool by about 40-50 per cent compared with the previous year, while at JPMorgan the pool could be as much as 40 per cent larger, according to people briefed on the matter.

Investment banks generated record fees thanks to a rush of dealmaking. The value of US deals in the first 11 months of 2021 totalled $2.3tn, an all-time high, according to Refinitiv data. Investment banking fees come from advising on corporate mergers and acquisitions, private equity buyouts, public listings and debt offerings.

Goldman and JPMorgan this year have taken in more investment banking fees than any other bank, according to their financial statements.

In the first nine months of 2021, Goldman reported $10.6bn in revenues from investment banking, up about 65 per cent from a year earlier. At JPMorgan, investment banking revenues in the same period were up 41 per cent year on year at $9.7bn. 

Bankers are hoping the flurry of dealmaking will translate into a record-breaking season for bonuses, which are usually paid early in the new year. Representatives for the two banks declined to comment. News of the higher bonus pools was reported earlier by Bloomberg. 

The final size of the banks’ bonus pools is still being decided and has yet to be communicated to staff. At Goldman, if a banker is given a bonus of less than 40 per cent of their salary it will be interpreted as a sign they have had a below-par year, according to one person briefed on the bank’s plans.

New York-based consultant Johnson Associates had estimated last month that Wall Street bonuses would rise 20-25 per cent in advisory work on mergers and acquisitions, and 30-35 per cent for bankers who work on underwriting for equity and debt deals.

Pay is by far the biggest expense for the banking sector and Wall Street lenders have been steadily setting aside cash for bonuses throughout the year. At Goldman, expenses from compensation and benefits in the first nine months of 2021 were up 34 per cent at $14.5bn. 

Investment banks such as Goldman and JPMorgan have already raised salaries for junior investment bankers who complained of burnout during the pandemic. Chief executives had indicated earlier this year that bankers could expect a good bonus season for 2021. 

“We are a pay-for-performance culture, and there’s no question that people are performing,” David Solomon, Goldman’s chief executive, said in an earnings call in October.