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European investment banks have cut their bonuses for the second year in a row after a long decline in dealmaking and listings that is finally showing signs of ending.
Deutsche Bank and BNP Paribas offered lower annual bonuses, highlighting the damage to the industry after rising interest rates prevented companies from pursuing acquisitions and cooled the market for initial public offerings.
Deutsche Bank, Germany's largest bank, last week announced a 5.5 percent reduction in its bonus pool for last year. The euro zone's largest bank, BNP Paribas, reduced its cash pool by about 5 percent, according to a person familiar with the matter.
UBS is set to reveal its bonus pool at the end of March after a testing year for its investment bank, but one in which some Credit Suisse bankers were offered big offers to persuade them to stay.
The bonus hit illustrates the dual impact of rising interest rates on many lenders, who have reported a rise in net interest income over the past two years, while their investment banking businesses have been suffering.
“Everyone is under a lot of pressure – it just depends on where managers choose to push harder,” said one consultant involved in pay discussions at several banks.
European investment banking fees fell to $17.2 billion last year, down from more than $30 billion in 2021 and the lowest total since 2016, according to data provider Dealogic. Bankers in Europe receive less of their income in bonuses because of the EU cap on variable pay.
Weakness in investment banks was not a drag on European bank stocks, with the Stoxx Europe 600 bank index rising to a six-year high after lenders pledged more than 120 billion euros to shareholders.
Separately, average bonuses on Wall Street fell 2 percent last year to $176,500, according to an estimate released Tuesday by the New York state comptroller.
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But investment banks are hopeful that the rebound in dealmaking and listings so far this year will gain momentum.
Europe's IPO market made its strongest start in a year since the Covid-19 pandemic, with companies raising more than $3 billion. At the same time, the volume of mergers and acquisitions has also increased.
The drought in mergers and acquisitions in 2022 and 2023 was a sharp contrast to the previous year when a wave of monetary stimulus from central banks in response to the pandemic encouraged companies and private equity firms to pursue deals.
Along with the drop in its overall bonus pool, Deutsche Bank cut cash bonuses for its senior executives by up to 50 percent after a failed IT project sparked chaos for some retail clients.
One anomaly in Europe is HSBC, which increased its company-wide bonus pool by 12 per cent after its pre-tax profits for the year rose by nearly 80 per cent.
