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Wall Street Pay Soars: Will the Boom Continue?

Pay is ratcheting higher across Wall Street, and it’s benefiting bankers from top to bottom. But the trend may not last.
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Bankers are benefiting from the booms in investment banking at their institutions. 

At the top, JPMorgan Chase  (JPM) - Get JPMorgan Chase & Co. Report CEO Jamie Dimon received a 10% pay increase to $34.5 million for last year. At the bottom, JPMorgan and Citigroup  (C) - Get Citigroup Inc. Report have just raised starting salaries for first-year investing banking analysts to $110,000, matching last year’s move by Goldman Sachs  (GS) - Get Goldman Sachs Group, Inc. Report.

JPMorgan reported gross investment banking revenue of $1.5 billion for the fourth quarter, up 50% from a year earlier. Goldman Sachs posted record investment banking revenue of $3.8 billion in the fourth quarter, up 45% from a year ago.

So bankers are reaping the rewards. Compensation for Goldman’s investment bankers soared 40% to 50% last year, knowledgeable sources told CNBC. And the bonus pool for those bankers at JPMorgan climbed 30% to 40%, according to CNBC and Bloomberg.

“This is the highest compensation many people have seen in the last decade,” David McCormack, head of finance recruitment firm DMC Partners, told CNBC.

Goldman’s compensation costs surged 33% to $17.7 billion for all of last year. That works out to paying $404,000 per each Goldman worker in 2021, up from $329,000 in 2020.

Meanwhile, JPMorgan’s corporate and investment bank saw compensation costs rise 13% to $13.1 billion, or $193,882 per person, for its 67,546 staffers.

“We want to be very, very competitive on pay,” Dimon said in the company’s earnings call last week. “There's a lot more compensation for our top bankers and traders and managers who actually did an extraordinary job in the last couple of years delivering this stuff.”

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If paying its workers competitive packages “squeezes margin a little bit for shareholders, so be it,” he said.

Shareholders may not be so happy to hear that. 

“He might as well have been telling investors — the providers of capital — that they shouldn’t moan about more of the returns from business going to labor instead of them,” wrote Bloomberg columnist Paul Davies.

“Although with more of those pay gains likely going to investment bankers than branch tellers, it’s probably not the kind of rebalancing between capital and labor many people would have had in mind.”

In any case, The Wall Street Journal points out that the pay parade may not last.

Investment banking pay rose twice as fast as revenue last year, it reports. Pay packages for investment bankers and traders at JPMorgan gained 13%, about 200% higher than the additional revenue they generated.

Investment banking may face a tougher time this year, with stocks correcting and the Federal Reserve likely to raise interest rates at least three times, The Journal notes. The regulatory environment toward mergers and acquisitions may sour, just as M&A boomed for investment banks last year.

“To the extent the environment in 2022 shifts, that compensation model is highly variable,” Goldman CFO Denis Coleman said in the company’s earnings call Tuesday, according to The Journal. 

In other words, last year’s lavish pay packages may be a one-time event.