Wall Street in the U.S. Shaken by 'Donut' Fear... Year-End Bonus Cuts in Progress

M&A and IPO Market Tightening Worsens Management
Goldman Sachs and Others Consider Bonus Cuts
Impact of Declining Luxury Goods Market Sales

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Lee Ji-eun] The zero bonus, also known as the ‘donut’ fear, is spreading across Wall Street, which held a bonus party last year. Despite enjoying the greatest boom in history last year due to the SPAC boom and meme investment craze, this year’s high-intensity tightening and market contraction have made bonuses unlikely. The tightening stance is expected to continue next year, and with the prevailing view that the economy will enter a recession, the fear looming over Wall Street is unlikely to dissipate easily.

◆High Interest Rates and Recession Warning Tsunami... Wall Street to Cut Bonuses by 50%

The year-end bonuses of major financial firms based in Wall Street are expected to be about half of last year’s.

The New York Times reported on the 26th (local time), citing anonymous sources, that David Solomon, CEO of Goldman Sachs, recently told executives at a management committee meeting to prepare for bonus cuts, and that other financial firms are in similar situations. Rich Handler, CEO of investment bank Jefferies Group, also reportedly mentioned the possibility of bonus cuts to employees, saying, "This year will be the toughest compensation season in our industry."

In addition, JP Morgan Chase, Bank of America, and Citigroup are also reportedly considering plans to cut bonuses by up to 30%. Bloomberg reported that Goldman Sachs conveyed a message to executives in the global markets division about double-digit percentage cuts in annual bonuses due to significant losses in its personal retail banking sector.

Forbes explained that most Wall Street employees who performed poorly this year are worried about receiving the so-called ‘donut.’ On Wall Street, ‘donut’ refers to the number zero, meaning no annual bonus will be paid.

The disappearance of bonuses is mainly attributed to the frozen initial public offering (IPO) market caused by high interest rates and recession concerns. According to the Wall Street Journal (WSJ), the total IPO volume of companies listed in the U.S. in October was $1.6 billion (about 2.2 trillion KRW), a 95% decrease compared to the previous year. WSJ analyzed that many companies postponed their listings due to concerns about stock market declines.

The scale of mergers and acquisitions (M&A) in the U.S. has also sharply decreased this year. In September and October, the U.S. M&A volume was $219 billion, down 43% from the same period last year. Last year, M&A volume reached an all-time high. The impact of high interest rates caused interest expenses on borrowed funds to increase several times, leading to a decrease in M&A volume. Dealogic, a market information firm specializing in M&A, forecasted that U.S. investment banks’ revenues this year will drop to about $35 billion, roughly half of last year’s.

◆Global Recession Warning Lights... Wall Street to Tighten Belts Again Next Year

Bank of America

The market expects Wall Street’s tightening management approach to continue for the time being. Since the global economy is expected to enter a recession next year, Wall Street is likely to spend several more months considering restructuring and bonus cut scales.

However, funds saved through cost reductions are expected to be used for hiring young talent. A Bank of America official told the New York Times, "Wall Street banks are fiercely competing to secure young talent," adding, "This may cause damage to executive-level personnel, and average bonuses for executives in the equity capital markets division could fall by up to 50%."

This content was produced with the assistance of AI translation services.