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. Last Updated: 07/27/2016

Bankers' Winter of Discontent

LONDON -- High-rolling investment bankers who raked in cash during the stock market boom will have to settle for less lavish bonus payments this year -- and in some cases nothing at all.

As the haggling gets under way over this year's payouts, many top earners used to multimillion dollar top increases to their salaries could end up substantially out of pocket as banks try to save money on all fronts in the face of shrinking revenues.

Some are predicting this year's bonuses, paid out typically between December and March, could for many be down 50 percent on last year, or even be scrapped altogether -- creating a mood of discontent across the industry.

"Bonus negotiations are starting now and will go on until the end of November. So there may be a lot of shouting in the next few months,'' said Davide Taliente of financial consultants Oliver, Wyman & Co.

Global players such as Merrill Lynch, Credit Suisse First Boston, J.P. Morgan Chase, Morgan Stanley and Goldman Sachs have been hacking away again at bloated payrolls built up during the stock market bubble.

But the knife has yet to fall heavily on pay.

Some bankers are still enjoying guaranteed packages negotiated during the boom, when a war for talent among the big investment banks drove pay through the roof.

"The problem of overcapacity is not so much a problem of bums on seats, but that the compensation hasn't adjusted,'' Taliente said.

Already some senior industry figures have hinted at what's to come.

Oswald Gruebel, co-chief executive designate of Swiss bank Credit Suisse -- parent of investment bank Credit Suisse First Boston -- was quoted recently saying 50 percent cuts in basic salaries and bonuses at the bank were possible.

There are indications too that pay packages are being skewed toward equity options and other incentives rather than cash.

Banking sources said CSFB has an incentive linked to the bank's return on equity -- dubbed "the Big Mack'' after John Mack, the other co-chief executive designate of Credit Suisse.

For investment banks the market climate has unremittingly poor for months. Stock markets have sunk to levels not seen since the late 1990s, while merger and acquisition deals that earn the fattest fees are in free-fall.

Last month global M&A deals dropped by another third from already low August levels, according to a Morgan Stanley note on investment banking activity.

Investment banking revenues are estimated to be 20 percent down in the second half of this year on depressed first half levels, forcing banks to cut an estimated 60,000 jobs globally since the start of last year.

More cuts seem on the cards.

"The equity market is back to 1997 levels, but is headcount back to 1997 levels? It is not, it's got further to fall,'' said an analyst at a major U.S. bank.

Banks that have already cut swathes of jobs could risk getting into a downward spiral of having to shed staff because revenues have fallen, then see revenues fall further because quality staff that bring in the deals have gone.

"The solution to this is simple -- pay people less,'' said one senior banker at a European investment bank.

Early this year global banking group HSBC did just that, offering zero bonuses for last year to equities staff at its investment banking arm. Some of its best people quit as a result.

"HSBC's zero bonus was not necessarily a wise move,'' said a source from a leading firm of London financial headhunters. "It costs more money to replace people than to retain them,'' she said. "But then again, if people don't make any money, why do they get a bonus?''

Investment banking managements are already looking at what's in the pot for bonuses and how to share it out.

"It tends to be a qualitative assessment rather than quantitative,'' said an industry consultant. "This year there will be a sharper skewing toward people who've performed best.''