Bankers in London, the hub for securities firms in Europe, are bracing for lower bonuses compared with their New York counterparts as earnings from the region plummet and pressure to tighten payouts mounts.
Investment bankers and traders at European banks should expect at least a 15 per cent cut in pay this year, while US lenders may leave compensation unchanged, three consultants said.
That's because bonus pools at European banks might be cut by as much as half, while those at US firms, which can cushion the impact of falling fees in the region with earnings from home, might fall 20 per cent, they said.
"The real split is coming, and we will see the quantum divide this year," Tom Gosling, a partner at PricewaterhouseCoopers in London, said, referring to the difference in pay between the two financial centres.
US regulators didn't have the same obsession with pay structures as the Europeans, he said.
While lower pay for all bankers reflected what might be a temporary drop in business, cuts at European lenders probably would be structural rather than cyclical, cementing a two-tier system, said John Purcell, chief executive of Purcell, a London search firm.
They also could spur some employees to relocate, says recruitment firm Astbury Marsden. Most jobs will be created in Hong Kong, Singapore and Shanghai.
"The centre of gravity continues to move towards China, while confidence in London continues to be chipped away," said Mark Cameron, Astbury Marsden's chief operating officer. "The trend does seem to be helped by an overly hawkish attitude taken by politicians and regulators in the UK."
European taxpayers still haven't been reimbursed for bailing out firms such as Royal Bank of Scotland and Amsterdam-based ING Group, and the region's lenders face further losses amid rate-rigging and money-laundering scandals.
As a result, policy makers are capping bonuses and forcing banks to defer more compensation and claw back pay.
"Europe is moving into a new phase of heavier and more intrusive banking regulation requiring more capital, greater liquidity, lower leverage and tighter restrictions," said Lex Verweij, who advises financial firms on pay. "That's likely to push pay lower in particular for capital-intensive products. Banks are facing public pressure to slash compensation significantly, even where performance hasn't been that bad."
The region's sovereign-debt crisis has crimped revenue at European firms.
Investment-banking fees, a key component in compensation, may fall 20 per cent to about US$15.8 billion in Western Europe this year, New York research firm Freeman estimates, based on an analysis of dealmaking and equity, bond and syndicated-loan sales. Fees in the US may rise 5 per cent to US$39.5 billion.
Investment-banking fees in Western Europe might be 53 per cent lower this year than at their 2007 peak, compared with a 24 per cent drop in the US during the same period, the firm said. Stock sales in Europe have fallen 23 per cent this year, while those in the US are up 23 per cent, according to Bloomberg data.
Goldman Sachs, Morgan Stanley and JPMorgan Chase, all based in New York, are among the five leading global merger advisers this year, and the top five underwriters of stock sales are US firms, the data show.