| NEW YORK
NEW YORK Wall Street bonuses, on average, will be little changed this year, but not since 1998 will the gap between the haves and have-lots be so great.
The collapse in mortgage markets and the broader credit crunch this year triggered about $50 billion in losses and thousands of job cuts at investment banks in hard-hit fixed income businesses. Concern about deeper losses and a slowdown in deal activity has hammered bank stocks.
Yet year-end bonuses, which make up the vast bulk of annual pay for bankers and traders, overall will be flat compared with record 2006 payouts, recruiters and headhunters say. Beneath the surface, though, individuals will see everything from increased payouts to pink slips.
"There's going to be a tremendous variance in terms of pay this year," said Eric Moskowitz, a compensation consultant at Options Group. "The only other year that compares is 1998."
That year, global bond market turmoil slashed fixed income profit, even as banking and equities businesses thrived.
Lost in all the recent noise about job cuts, write-downs and ousted chief executives is that Wall Street will generate record revenue this year -- an estimated $132 billion among the top 5 banks -- powered by a first-half frenzy in mergers and acquisitions, equities trading, stock offerings and money management.
The most successful advisers, equity traders, commodities and derivatives dealers will rake in bonuses that are 10 to 20 percent higher this year, according to Wall Street recruiters.
Average bonuses for managing directors in investment banking, using one example, will range from $2 million to $2.5 million, up 10 percent from last year, the recruiters said.
Meanwhile, colleagues in hard-hit businesses such as leveraged lending, mortgage securities and CDO underwriting will see bonuses cut by a third or slashed to zero, they predicted.
GOLDMAN THE OUTLIER
Then there's the chasm between Goldman Sachs Group, which is having a record year and projected no write-downs, and the rest of Wall Street, which has recorded big asset losses. The largest investment bank alone may pay out $22 billion in bonuses, roughly half the total pool.
A meltdown in securities backed by subprime mortgages has roiled debt and stock markets in the year's second half, and brought raging M&A activity to a screeching halt in July. Banks slashed roughly 10,000 mortgage, banking and fixed income jobs.
Yet record revenue at many banks will make it hard for bank executives to skimp on the bonuses.
"All these problems are localized," said Alan Johnson of compensation advisers Johnson Associates. "You can't not pay the rest of the people. You'll have an insurrection."
Indeed, bonuses among the five largest investment banks could reach $40 billion, based on estimated revenue of $132 billion, a total compensation ratio of 50 percent and assuming bonuses comprise 60 percent of that pay. The five firms paid a record $36 billion last year amid record results.
But looking at the full range of commercial banks and European banks -- including Merrill Lynch, UBS, Citigroup, and Bank of America -- bonus payouts could fall as much as 10 percent.
Banks hit by the credit crunch will be eager to cap expenses without driving away bankers by paying relatively paltry bonuses.
It's the traditional balancing act made even trickier by the fact that Bear Stearns, Merrill and Citigroup, where revenue is under pressure, announce their bonus payments after the untarnished Goldman.
"I don't see how any platform can maneuver to approach what Goldman will do on bonuses this year," said Stephen Spagnuolo of Sheffield Haworth. "Goldman is the outlier."
Rivals will have to make the effort. Newly hired Merrill CEO John Thain has said he expected to pay out nearly 60 percent of revenue as compensation to ensure that Merrill's best people stick around as the firm tries to turn its business around.
A fashionable solution this year is offering an unusually high mix of stock as compensation, up to more than 70 percent, compared with the more typical 50-50 split. That defers costs and can help retain star staffers.
UBS, for one, will cap cash bonuses at $750,000 this year. It announced a $3.6 billion hit to third quarter results from subprime write-downs. Analysts expect additional fourth-quarter losses.
To be sure, some recruiters expect credit woes will take a bigger bite out of bonuses. Options Group's Moskowitz says that bankers will be pleased even if bonuses drop 5 to 10 percent.
"That's pretty darn good -- 2006 was a record, so you're pretty happy," Moskowitz said.
(Editing by Brian Moss)