Bankers are facing the prospect of a miserly Christmas as bonus pools are reined in to combat rising costs.
Holiday bonuses at banks shrink
Banks are reining in staff bonus payouts before the Christmas season, leaving many bankers feeling less like Gordon Gekko and more like Ebenezer Scrooge.
Cost cutting measures have resulted in lower bonus pools at investment banks and private banks, top bankers said.
In an effort to combat rising costs, the financial services industry has cut 200,000 jobs worldwide this year, outstripping the 174,000 job cuts made in 2009, according to data compiled by Bloomberg News.
Investment bankers may have to become accustomed to lower bonuses for some time following widespread efforts to cut costs, said Henry Azzam, the regional chairman of Deutsche Bank.
"All banks will have to cut costs … for many years to come," he said. "And as certain institutions are retrenched in the market, this will offer opportunities for those who are stronger and who have a bigger presence." Julius Baer is also likely to pay reduced bonuses, driven by falling competition with investment banks for top talent as staff remuneration falls, said Rémy Bersier, a member of the executive board at the Swiss bank.
"Investment banks have been reporting lower bonuses, and private banking is reducing ours in line," he said.
Rising costs are forcing banks to tackle staff pay, which has become a politically charged issue in many countries where taxpayers have bailed out banks.
Cost-to-income ratios at investment banks have risen steadily as regulations increase and deal volumes dwindle amid a darkening macroeconomic outlook.
UBS, Switzerland's biggest bank, reported a cost-to-income ratio for the first nine months of this year of 92.6 per cent at its investment banking division - meaning that for every US$1,000 (Dh3,673) earned, $926 was paid out in costs including salary, bonuses and other administrative costs.
Shuaa Capital, a Dubai investment bank, recently announced a second round of job cuts after reporting eight loss-making quarters out of the last 12.
Some banks in the UAE, such as Emirates NBD, have attempted to capitalise on falling bonus pools and job cuts by poaching staff from western competitors to build investment banking divisions.
However, regulatory changes meant this line of business was generating lower returns at banks than before the financial crisis, said Raj Madha, a financial analyst at Rasmala Investment Bank.
"Investment banking is now requiring more capital to back it than it has done in the past," he said. "It will no longer be such a high return-on-equity activity."
But the prospects were still better for bankers to accept reduced bonuses than to find themselves out of work, Mr Bersier added. "People are happy to have a job today and to be active in this sector," he said.