Wait for bonus gets longer for investment bankers

Written by Ankit Doshi | Mumbai | Updated: Jan 4 2013, 05:35am hrs
It may have been the best December for the Indian equity market in terms of fundraising, but for the investment banking fraternity, 2012 didnt really end on a high. Bonuses were next to nothing as deals were far and few between.

According to investment bankers, the payouts at the end of 2012 were marginal, considering that the year did not see many mergers and acquisitions (M&As) and only a handful of initial public offers (IPOs), which offer thin margins due to tough competition.

Further, while the government has been able to tap the market with a couple of successful stake sales, the deals do not net any commission to the bankers as the fees are near-zero.

Even if someone got, say, around 8-10% of their CTC as bonus, he should consider himself lucky, said a banker with a foreign entity. There were hardly any notable deals this year and, so, income was subdued. The only saving grace was the large number of blocks that got us a decent amount of commissions, he said.

Interestingly, 2011 had seen investment bankers pocketing a large share of their income through block trades. The year 2012 saw some foreign institutional investors (FIIs) and private equity players making exits from banking stocks through block trades.

Meanwhile, 2012 saw only 11 companies hitting the capital market with IPOs, out of which two were withdrawn. Bharti Infratel and the Multi Commodity Exchange (MCX) were the two large issues of the year, but the sheer number of bankers involved in each of the offer ensured that any single banker did not pocket a huge fee.

It is not that there is no bonus payout. But, it is nothing when compared to the period between 2006 and 2009, said another banker wishing not to be named.

The business is getting overcrowded, fees are dropping and there is cut-throat competition in the market. Work has increased two-fold, while fees have halved. It is like putting 4x the effort, he added.

Market players add that investment banks backed by broking firms and non-banking financial corporations (NBFCs) may not give better incentives to employees as some of the key business verticals had a tough time throughout the year. Also deal-related losses could impact the quantum of bonuses.

Bonuses purely depend on the performance of the institution, team and an individual. Bonuses will vary across different companies and countries. While Indian banking entities are expecting better payouts this year, the situation in foreign entities is not that great, said a banker with a domestic entity backed by a public-sector bank.

Indian banking entities follow the financial year and make the bonus payouts around March, while foreign players dole out bonuses in December as they maintain their books based on calendar year.

According to a London-based banker whose firm has a sizeable presence in the Indian market, 2012 was a so-so year for all foreign banks operating in India and the quantum of bonuses would be below average.

Foreign bankers assign a high proportion (more than 50%) of the CTCs linked to performance, unlike Indian banking firms. Since, the world had been reeling under the Europe debt crisis, the I-bank pipeline was mostly dry throughout the year, he said.

Bankers in the US would be better placed than their European counterparts. Some institutions may not give bonuses at all, especially those functioning in Europe, because of the crisis. Some big institutions were even forced to pay penalties that have impacted their earnings, said the London-based banker. Global banks and institutions like UBS, Deutsche Bank, Standard Chartered and HSBC were slapped huge penalties for failing to adhere to regulations in 2012.