Current sentiment and discussion surrounding banker pay, bonuses and basic salaries has dominated headlines for this first quarter of the year. Unsurprisingly – January and February have been dominated with the compensation round, with most firms paying somewhere in the region of 25-30% down (total comp). There have been a significant number of zero bonuses given out. 

Whilst few employees were happy with these decreased payments, media reporting of the Greek crisis and broader macro events managed staff expectations down to the point that there was little surprise at the end result for the majority. More significant has been the differentiation of the delivery of bonuses, with US firms (with certain exceptions) being more generous with the cash component of their pay to employees, Europeans being more moderate and Swiss firms seen as the most conservative. Meanwhile independent advisory firms sit more comfortably on the side-lines, unrestricted by the FSA in the manner by which they deliver their compensation to staff and generally erring towards a higher cash component for their employees. 

But what next for 2012?

The market is subdued as corporate, FIG and financial sponsor activity remains relatively inactive. However, there is a sense of cautious optimism that has prevailed over recent weeks. The ECB lending facility has been beneficial to the European banking sector, and most banks – at least from a debt primary capital markets perspective – have had a relatively good start to the year, including Corporate DCM, FIG DCM and High Yield. However, M&A activity is slow, despite the monster Glencore / Xstrata deal, as well as further M&A activity across the Natural Resources space. Further to this, the IPO market in Europe is effectively shut, which has made for a frustrating start to the year for many ECM bankers. The leveraged loan market is also relatively slow and there are some interesting LBOs in the market but these are dependent on the High Yield market. Most US and North American banks, Asian and some northern European banks (the Scandinavians) are liquid, however major European banks are significantly less liquid and are in the process of deleveraging and selling assets. 

Despite this cacophony of seemingly negative news, there is a significant pipeline building. Corporate clients are sitting on great swathes of cash, Financial Sponsors (at least those that have successfully raised funds) still have a lot of dry powder, which means that bankers do have relatively full pipelines. While the cuts are not complete, some firms will find it difficult to cut further.

From a recruitment perspective, it is clear that most bulge-bracket banks have not had sign off yet for 2012 hiring, except for certain instances in relation to particularly strategic hires. Whilst some hiring managers have a ‘wish list’ of areas where they would like to add staff, there is a sense that many firms’ senior management are still hesitant about where macro events will take the market and what departures will naturally occur, in part as a result of the compensation round – hence replacement is still more crucial than expansion to most business’ plans. 

This being said, if markets continue to return then it may well therefore prove to be a year of two halves; with relatively subdued recruiting activity for the first 4 – 5 months of the year, but then paradoxically becoming increasingly busy as the year progresses and firms suffer from a lack of capacity relative to business inflow.