Citigroup Inc reduced the bonus pool for fixed-income and equities traders and salespeople after their division’s lackluster performance in the final weeks of last year, according to a person briefed on the matter.
The bonuses will drop 5 percent to 10 percent on average, said the person, who asked not to be identified discussing compensation. Citigroup, the third-biggest US bank, planned as recently as the middle of last month to keep the bonus pool unchanged from 2013, a person briefed on the matter said at the time.
Chief executive officer Michael Corbat, who said last month that fourth-quarter trading revenue would decline by about 5 percent, is adjusting compensation for employees to fit the bank’s performance. The bonus cuts suggest the drop could be steeper than Corbat predicted, Drexel Hamilton LLC analyst David Hilder said.
“It’s an unpleasant surprise when it’s in the last two weeks of the quarter and everyone has set up their budgets,” said Hilder, who recommends investors buy Citigroup shares. “To the extent you give up revenue in the businesses where you have a lot of variable comp, like trading, you don’t have to pay people as much. That’s how it works.”
Jamie Forese, 51, who heads the institutional clients group that includes the trading businesses, briefed the bank’s trading-desk chiefs about the bonus cuts earlier this week, the person briefed on the matter said. The adjustments were necessary because revenue failed to meet the bank’s projections, the person said.
Corbat, 54, said at a Dec. 9 conference that he expected fourth-quarter markets revenue to slide in the “the 5 percent-ish range, maybe a bit more” from the same period a year earlier, when the bank brought in US$2.86 billion from trading stocks, bonds, currencies and commodities.
While a 5 percent decline would have meant about US$143 million in lost revenue, the revenue drop could be as much as 7 percent, or US$200 million, Hilder said.
Corbat isn’t alone. Bank of America Corp, the second-biggest US bank, also forecast a decline, CEO Brian T. Moynihan said at the same event, without providing an estimate for the size of the drop.
Bank of America moved to shrink its bonus pool after disappointing results last month, the Wall Street Journal reported, citing people familiar with the matter. The move affects investment-banking and securities employees, the newspaper said.
JPMorgan Chase & Co may pay traders 15 percent less than a year earlier, with the foreign-exchange and rates employees the hardest hit, the Journal reported. Investment bankers will get increases of a few percentage points, the newspaper said.
Analysts including Jeff Harte of Sandler O’Neill & Partners estimate that Goldman Sachs Group Inc’s fixed-income trading fell in the fourth quarter, leaving full-year revenue little changed from 2013. That would indicate traders are likely to see bonuses stay roughly in line with the previous year.
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