What Happened To Investment Banking Fees
After an initial slowdown when the pandemic first struck in early 2020, banks have generated record-high fees from M& A and capital markets deals.
Heres 2021 global investment banking revenue by region, with percentage increases over 2020 noted:
According to other sources, global fees were nearly $160 billion, up 22%, with revenue in areas like M& A jumping nearly 50%.
Unsurprisingly, super-loose monetary policy combined with widespread panic about the future led to a boom in deal activity.
And since everyone was working from home, senior bankers could pitch far more companies from the comfort of their small mansions, resulting in record-high paydays for MDs and terrible lifestyles for junior bankers.
At the same time, compensation rose in rival industries, such as tech, and working 80-90 hours per week for $150K in total compensation increasingly seemed like a bad deal.
Together, these factors forced the large banks to increase pay.
That move has generated a few questions:
Ill address these questions at the end, but I want to cover the main components of IB compensation and give some more commentary on the pay increases first:
Investment Banking Analyst Salary
For a first-year investment banking analyst in the US, the base salary is $100,000, and most analysts will receive a year-end bonus in the range of $30,000-$40,000. Absolute top performers will get a bonus as high as $50,000. The all-in comp for most 1st year analysts thus comes to around $150,000.
Investment banking analysts are typically hired straight out of college into a two-year program that sometimes extends to the third year.
Since May 2021, major Wall Street investment banks like Goldman Sachs are giving their junior bankers a pay raise. First-year analysts the most junior of investment bankers who are typically recent college graduates will be paid a $110,000 annual base salary, up from $85,000, according to a person with knowledge of the changes. The person added that second-year analysts will earn $125,000, up from $95,000, and first-year associates will get a $25,000 pay bump to $150,000.
Insider Insights: For Investment Bankers Pay Soars Along With Hours
Salaries are rising for investment bankers, but so are hours worked, according to the Wall Street Oasis 2022 Investment Banking Industry Report.
If the big takeaway from Wall Street Oasis 2022 Consulting Industry Report was that there are great consultancy careers to be made outside the MBB , the takeaway from the Investment Banking Industry Report is this: You can have a truly astronomical salary as a new investment banker, or you can have a manageable work-life balance. Its increasingly hard to have both.
Data from WSOs 2022 Investment Banking Industry Report, reported by employees actually working in the field, shows that while salaries are rising a couple of years into the pandemic, the working hours required to get those high salaries are also through the roof.
Investment banks are having a harder time holding on to analysts who often work 80 or more hours a week at some places. That attrition problem has forced the banks to compete with consulting firms for interns and first year analysts, driving up salaries at consulting firms, and driving them up even more so for starting bankers, Patrick Curtis, founder and CEO of Wall Street Oasis, tells Poets& Quants.
Read more about WSOs report methodology here.
WHICH INVESTMENTS BANKS PAY THE MOST?
For those chasing the highest paycheck, the salaries and the bulge brackets are indeed eye popping.
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Investment Banking Analyst Salary In London
Investment banking analyst salaries in London are lower than in NYC.
As is the case in the United States, there is a standard base: In London, almost all firms currently offer a £60k base, growing to £65k and £70k for 2nd and 3rd-year analysts, respectively.
Salary is comparable to London after adjusting GBP to EUR in smaller financial hubs in Europe such as including Switzerland, Frankfurt and Zurich.
The Success Of The Firm
The firms performance will materially affect the amount of end-of-year bonuses for employees. When the revenue is lagging, investment banks have to face some defections and cut bonuses to reduce costs. Thus, banks past performance might be helpful for you to compare compensation among many investment banks.
In 2020 a year of recession, JPMorgan, Goldman Sachs, Bank of America and Morgan Stanley are leading banks by revenue. The endless money printing from central banks leads to a surge in debt & equity issuance and M& A activity in the second half of 2020 though at the beginning, investment bankers are freaked out about the bonuses when they work from home.
Leading banks worldwide in 2020, by revenue from investment banking
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How Much Do Investment Bankers Make
On average, an entry-level investment banking analyst earns $100,000 annual base salary, while a first-year investment banking associate may earn up to $180,000. Vice presidents are typically paid $200,000-$300,000. The highest on the food chain is the managing director, who makes anywhere from 600k to several million dollars.
Disclaimer:The actual salary you receive will depend greatly on where you are hired. The figures above are ballpark numbers.
Investment banking total compensation is made up of five components:
- Base salary: This is your bread and butter, which youll take home regardless of performance.
- End-of-year bonus: Your end of year bonus will be a percentage of your salary and it depends on your performance, deal flow, industry experience and which ranking bucket you fall into. These bonuses tend to be in the range of 70-100% of base salary and, like base salary, can vary if you are an elite or boutique bank.
- Stub bonus for new hires: When analysts are hired in the summer, theyve been working at the bank for 5-6 months when bonuses are due. These hires get a stub bonus in the region of $20k $30k. Associates hired in the summer will get a lower percentage of base salary.
- Signing bonus: First-year analysts can also receive a one-time signing bonus in the range of $5k $15k. For associates level, the signing bonus is significantly higher, around $10k $30k.
Goldman Sachs Is Now The Only Wall Street Bank Yet To Raise Junior Salaries
Taxi cabs pass in front of Morgan Stanley headquarters in New York
Morgan Stanley has raised base salaries for entry-level bankers to $100,000, leaving Goldman Sachs as the last remaining Wall Street bank yet to hike pay for juniors.
The US investment bank has increased pay to $100,000 for first year analysts, according to people familiar with the matter, while those in their second year will receive $105,000. The salary increase will be from 1 August and rises from $85,000 and $90,000 respectively.
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The Success Of The Group
One important thing to recognize is that investment banking pay is going to fluctuate with the overall deal volume of the industry. If the economy is slow, then there are fewer deals to do, and fewer commissions to be made.
Top performing IB groups by number of deals and fees 2020
Top-performing Investment Banks in industries by fees 2020
Morgan Stanley Investment Banking Analyst Jobs
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Projected Investment Banking 2021 Bonuses
Johnson Associates, a compensation consulting firm, expects year-end incentives to increase to their highest levels since the Great Recession in 2008 as the financial services industry is benefiting from a sharp rebound in deal volume.
More specifically, the following bonus changes are currently anticipated for 2021:
- Investment Banking Underwriters: Forecasted to Increase by 30% to 35% Year-over-Year
- Investment Banking Advisory & Equities Trading: Estimated to Increased by 20% to 25% YoY
Projected 2021 Bonuses
In 2021, Goldman Sachs and JP Morgan are each preparing to pay out larger-sized bonuses to their investment bankers, with practically all investment banks following suit.
For instance, Goldman Sachs is expected to raise base salaries for their entry-level investment banking analysts from $85,000 to $110,000.
Therefore, in addition to the increased base salary, the top banks are focusing on building a pay-for-performance culture.
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Stub Bonuses In Investment Banking
Analysts start in the summer after completing undergrad, joining full-time in the middle of the year.
Traditionally investment banking analysts get their first-year bonus a full 12 months after arriving and dont switch to calendar year bonuses until they are promoted to associate .
However, firms are increasingly switching to the stub year model for IB analysts, to reset their bonuses to a December calendar year-end. In this case, analysts get a small stub at the end of their first calendar year , with the next bonus coming 12 months later.
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Investment Banker Salary And Bonus Levels: The Main Components
For most bankers, there are five main components to compensation:
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Morgan Stanley said it will start paying six-figure base salaries to its entry-level bankers as a rush of post-pandemic deals and short staffing have spurred crushing workloads.
The Wall Street behemoth announced the $15,000 raise on Wednesday: First year analysts in investment banking and capital markets will now make a base salary of $100,000 and second-year analysts will now make $105,000, up from $85,000 and $90,000, respectively.
Morgan Stanley, headed by CEO James Gorman, follows on the heels of competitors JPMorgan and Citi both of which announced in recent weeks that first-year investment bankers would haul in $100,000.
People close to Morgan Stanley say the pay hike is a nod to the fierce battle for bankers that has ramped up as dealmaking surges. July is typically when Morgan Stanley reevaluates and announces any changes in pay. The new salaries will go into effect on Aug. 1.
Morgan Stanley declined to comment.
Goldman Sachs is now the only top-tier firm that has yet to announce a pay hike for junior staff and debate over the matter is roiling senior executives internally. People close to the bank note Goldman is keeping an eye on the competition and will announce any salary changes at the beginning of August.
Elsewhere, Citibank CEO Jane Fraser told employees she was banning Zoom meetings on Fridays to address Zoom fatigue. Investment bank Jefferies even offered its junior staff the primo Peloton bike as a thank you for working long hours.
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Investment Banking Full Time Analyst Programme
PLACEMENT AND DURATION
During the two-year program, Analysts work on a variety of corporate transactions and have significant responsibility. The work is challenging, and Analysts are encouraged to be an integral part of coverage and project teams and dig into financial statements and think creatively. Our lean deal team structure allows Analysts to work closely with senior officers on a variety of projects. Analysts will attend and be active participants in client meetings.
The Investment Banking Analyst Program begins in the summer with seven to eight weeks of intensive classroom training in London. This includes business presentations, practical sessions and the opportunity to exchange ideas and learn from your peers. You will join Analysts from Global Capital Markets, Sales & Trading, Research and Investment Management in the combined Institutional Securities Induction Program, followed by specific investment banking training. This covers accounting, valuation, advanced modelling, Morgan Stanley’s proprietary analytical tools, information technology and financial products. You will then undertake regulatory training and exams. At the end of training, Analysts will be able to understand financial concepts, build a dynamic model and have a strong understanding of the Morgan Stanley culture.
Investment Banking Vice President Salary
Investment banking vice presidents are the next step after associate and before director in the investment banking career path and earn base compensation of $200,000 $300,000, with bonuses ranging from $200,000 to $400,000 at the large investment banks and elite boutiques. The all-in comp for 1st year VPs comes to around $400,000- $600,000.
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Regional Differences And London Compensation
If you go by the 2020-2021 Arkesden reports, the old numbers in London were:
- Analyst: £50K £60K base salaries and total compensation of £80K £120K.
- Associate: £90K £130K base salaries and total compensation of £150K £240K.
- VP: £140K £170K base salaries and total compensation of £250K £350K.
But banks increased base salaries once again here, so the new numbers seem to be something like:
- Analyst: £60K £90K base salaries .
- Associate: £100K £140K base salaries.
- VP: £150K £180K base salaries.
Total compensation is probably £20K £40K higher for Analysts and Associates and more like £50K+ higher for VPs.
At a 1.35x GBP:USD exchange rate, these figures are still much lower than U.S. compensation, but that has been the case for a long time.
You can blame Brexit, better lifestyle/hours, and pay in competitive industries in Europe being lower as well.
Investment Banker Salary And Bonus Levels: Managing Directors
As usual, its hard to say anything definitive about trends in MD bonuses because bonuses at this level depend 100% on performance.
If you close no deals, your bonus could be $0, but if youre on fire, you could earn in the low millions.
The average MD is probably earning between $1 and $3 million per year, with a significant percentage paid in stock and deferred compensation.
The ceiling could be a multiple of that number, but the average MD does not earn in that range.
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How Much Is An Investment Banker Salary
On an absolute basis, investment bankers are some of the highest-paid professionals for their age. As a new hire, you can expect to earn over $100,000 straight out of school, which will probably blow most of your classmates out of the water. But the investment banker salary on an hourly basis is another story.
On a per hour basis, investment bankers are not paid nearly as well. With most analysts and associates working over 100 hours per week, their hourly wages can range anywhere between $25-$35 per hour. Thats not bad, but it doesnt sound as good as $100,000 a year did.
Ib Analyst / Business Analyst
The job of Investment Banking Analyst is provided to those who have recently completed their Grad / Post Grad degree. The primary responsibilities of these analysts are to perform research and analysis tasks for various investment banking projects. An fresher with this designation may expect to make around 6-7 lacs per annum on average, while more experienced applicants can expect to earn around 10-15 lacs.
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Investment Banker Salary And Bonus Levels: Analysts
Initially, banks moved Analysts from the $85K $95K progression for base salaries up to $100K $110K.
Meanwhile, some elite boutique banks, such as Centerview, went up to $130K for Year 1 Analysts .
Then, in January 2022, banks went to $110K and $125K base salaries for 1st and 2nd Year Analysts, making the initial increase seem like chump change.
Bonuses for 2021 spanned a wide range, going from $75K to $115K for Year 1 Analysts and $105K to $145K for Year 2 Analysts.
And some elite boutiques paid above these numbers, meaning that some 2nd Year Analysts could have earned closer to $300K, depending on the base salary number you select.
On the other end of the spectrum, some regional boutiques might still pay base salaries less than $100K along with substantially lower bonuses, which is why I set $150K as the bottom of this range.
At large banks this past year, bonuses seemed to be around 100% of the old $85K $95K base salary numbers, with some variation above and below that depending on the firm size and type.
But with these higher base salaries, that percentage will almost certainly decrease, so total compensation will stay about the same.