A Tumble in Wall Street Bonuses: The Depressing Forecast for 2025
Banking sector bonuses to take a hit due to economic instability
The world of Wall Street is gearing up for a disappointing end to the year as bonuses are predicted to plummet following a prosperous 2024. This gloomy outlook is attributed to economic turmoil sparked by global trade wars and political tension, predominantly instigated by the United States.
Investment bankers, hedge fund employees, asset and wealth management experts, and a myriad of other financial professionals are preparing themselves for reduced year-end incentives in 2025. This prediction marks a drastic change from the past year, when bonuses witnessed a significant increase, and sector profits soared.
Alan Johnson, CEO of compensation consulting firm Johnson Associates Inc., summed up the current situation, stating, "We started 2025 with momentum and optimism, but that has changed rapidly." He further added, "Now, incentives are expected to decline moderately from a high level."
The catalyst for this discouraging forecast stems from the chaotic period wrought by President Donald Trump's trade tariffs. These policies have hindered the demand for mergers and acquisitions, causing a slowdown in such activities. However, the same volatility has triggered a hike in demand for equity offerings, resulting in a potential 15-25% increase in trader bonuses. Their counterparts in fixed income may experience a more conservative boost of 10-20%, as per the report by Johnson Associates Inc.
It's worth noting that while some operators at large banks are thriving, profiting from market volatility, others face unpleasant uncertainty due to the volatility's impact on their businesses. "Some operators at big banks are doing very well, benefiting from volatility," Johnson remarked, while acknowledging that "for others, the level of uncertainty is unpleasant, given that most financial services need stability."
The expected rise in merger and acquisition activity propelled by a pro-business presidential administration has failed to materialize due to ongoing trade tensions keeping the financial sector on the sidelines. Advisory bonuses related to mergers and acquisitions are anticipated to drop by up to 10% this year, as the anticipated spree of deals disappoints, according to Johnson Associates Inc.
In a related development, corporate clients have scaled back stock sales due to market instability. Bankers assisting companies to raise capital are likely to endure the most significant drop in incentives – up to 20%, as per the report.
Strong demand for wealth management services could, nevertheless, be offset by market declines, resulting in a 7.5% dip in payouts in this sector, as per Johnson Associates Inc. Similarly, those working in asset management could face a 5-10% decrease due to market declines and capital outflows.
Last year's Wall Street bonuses saw a significant surge, with the total payout pool reaching a record $47.5 billion, thanks to sector profit increases. The average annual bonus surged by nearly a third to $244,700, a substantial increase since the COVID-19 pandemic.
However, as the year draws to a close, forecasts could change, particularly if clarity emerges regarding economic uncertainty, trade negotiations, and the Federal Reserve's trajectory for lower interest rates. Certain industries, such as retail and commercial banking, could be more affected than others. Employees in these sectors could experience up to a 10% drop in incentives due to reduced lending activity and increased provisions for credit losses, as per Johnson Associates Inc.
In a nutshell, Wall Street bankers had high hopes that President Trump's tax cut and deregulation plans would trigger a wave of deals and activity in capital markets. In light of ongoing economic uncertainty and market volatility, much of the financial sector may end up disappointed with their bonuses, as noted by Johnson.
"This was supposed to be their year," he said, adding, "But the rug has been pulled out from under them."
The following forecast for 2025 indicates a decline in average bonuses for financial professionals working on Wall Street, representing a significant change from the prosperous 2024. This downturn is partly attributed to the instability caused by global trade wars and political tensions, particularly in the United States.
Despite the increase in demand for equity offerings due to market volatility, sectors such as mergers and acquisitions, corporate stock sales, and wealth management could experience a drop in incentives, with an estimated 10% decrease in advisory bonuses related to mergers and acquisitions.
In 2025, the average annual bonus could decrease by up to 10% for employees in retail and commercial banking, due to reduced lending activity and increased provisions for credit losses. On the contrary, traders in these volatile markets may still see a potential 15-25% increase in bonuses.
The uncertainty in the financial market has left some operators at big banks thriving while others face significant obstacles. "This was supposed to be their year," said Alan Johnson of Johnson Associates Inc., acknowledging the disappointment that many finance professionals might feel if the predicted downturn materializes.
