Banking bonuses could fall 20% in 2025 due to Trump's tariffs
A lot of the finance world cheered when Donald Trump was elected back to the White House. Many of those that cheered him on, however, might soon regret it.
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Trump’s economic plan, now executed, has spooked the market. Turbulence is real – the VIX, a measure of volatility, closed at over 50 early last month, its highest level in five years. Deals are on hold. And that has the potential to impact banking bonuses heavily.
Figures from Johnson Associates, a financial services compensation consultancy, outline the scale of the issue. In Johnson's worst case scenario, where a broad trade war results in recession and market decline, bonuses in financial services could fall anywhere up to 20% for 2025 compared to 2024. In its best case scenario, where a trade war is averted and tariff policy is clarified, bonuses will mostly be flat, somewhere between a 2.5% fall and 2.5% rise. And in what Johnson Associates considers the most likely situation, where tariffs are selective and a trade war is uncertain, it predicts bonuses will still fall – but only by somewhere between 5% and 10%.
In each scenario, Johnson Associates thinks some areas of the financial services industry will suffer more than others. Bonuses paid by private equity and insurance firms will be most protected from a worsening economic situation; bonuses paid by asset managers will be the most exposed. And if the situation reverses, it will be hedge funds and wealth management firms that pay the best bonuses, according to Johnson Associates.
Within banks, fates will be mixed. Johnson Associates credits sales & trading professionals, as well as debt capital markets (DCM) professionals, with the best chances of getting a bonus rise this year compared to last. Sales & trading bonuses are expected to increase because volatility drives trading volumes, while DCM professionals will benefit from increased debt issuance.
The biggest falls will be for equity capital markets (ECM) and M&A professionals. There was much hype about both sectors coming into the year, both due to Trump and an apparent shift of market sentiment during 2024. Johnson Associates predicts, however, that M&A mania will stutter, and that the IPO market will “stall” as firms wait for the coast to clear for issuance.
On the buy-side, the situation is less favourable. Despite sales & trading professionals benefiting from volatility, Johnson Associate anticipates that hedge funds will struggle generally, with two notable exceptions: macro traders/strategies and quant funds, who are poised to do well (and therefore receive bonus increases).
In private equity, Johnson predicts that the largest funds will benefit from scale and product diversity despite the difficulty of exiting investments. However, small- and even medium-sized private equity firms will continue to suffer from the “poor fundraising environment”. Bonuses for private equity professionals as a whole will therefore be anywhere between flat (at megafunds) and down 10% (at smaller firms).
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