Citigroup, JPMorgan Chase and Bank of America have warned employees that their bonuses will not keep pace with explosive performance in areas like fixed income trading and debt and equity underwriting, paving the way for a record gap between payments and dividends.

Senior executives of two investment banks told the Financial Times that they were trying to “manage expectations” for 2020 bonuses by reminding employees that the wider companies had booked huge loan-loss fees to Prepare To increase defaults as the pandemic devastates global economies.

In the third session, a senior executive said that the bonuses were “a huge issue we’re grappling with” as the bank tries to balance paying people for results with their need to be “good citizens.” This is in an environment where regulators and politicians Curb Shareholder payments so they have reserves for potential loan losses.

Investment banks walk a fine line in terms of wages each year, as executives try to balance the expectations of some bankers and dealers with demands from investors to control costs and public anger at the wealth of millionaire bankers.

However, the challenges are greater than usual this year.

“This is the first time since the financial crisis that we have seen such a big difference between parts of the big banks,” said Alan Johnson, founder of New York-based pay consultancy Johnson & Associates, referring to the Gulf in performance. For retail business for banks and their advisory and commercial divisions.

Group-wide earnings were affected by Citigroup, JPMorgan and Bank of America by a total of $ 48 billion in loan-loss fees in the first nine months of the year, more than three times what the group allocated for bad loans in the first. Nine months of 2019.

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At the same time, the three banks enjoyed significant revenue increases from parts of their investment banks. These included a 54 per cent increase in fixed income revenue at JPMorgan Chase and a 42 per cent increase in fixed income revenue at Citigroup. Equity and debt subscriptions also enjoyed strong gains.

Johnson said wage issues would be less contentious at Morgan Stanley and Goldman Sachs as they did not have the same exposure to coronavirus-related loan losses as the major lenders. Together, Morgan Stanley and Goldman earned only $ 3.5 billion in loan-loss fees this year.

A person familiar with JPMorgan’s approach said the company would still be “very competitive” on wages, but the thinking would be “foolish, short-term and unruly to make huge payments when the medium to long-term outlook (the economy) remains unclear.”

JPMorgan CEO Jimmy Dimon last week warned His bank could increase its provisions by $ 10 billion if there were “better results” or $ 20 billion less than the provision if the United States hit a double-dip recession.

At Citigroup, one executive said bonus groups could decline in some areas where profits had risen, but the bank was aware it was not far from its peers. At Bank of America, an executive said final decisions about wages would not be made until later in the year, but that the bank had begun to “soften people” for fewer bonuses.

“It’s smart to send the message (fewer rewards) now … if your income increases by 50 percent, your rewards are likely to go up by 25 percent,” adding that the rewards are likely to be significantly higher in fixed income, and a smaller increase In equities, a drop in mergers and acquisitions, where fees are running, is below last year after deals dried up in the early months of the pandemic.

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A Goldman executive said the bank would pay for the performance, as it has been doing every year. A Morgan Stanley executive said that those who did well would get paid, but the bank would differentiate between people who added value and those who enjoyed a significant increase in their revenue due to favorable markets. Large Fed bond purchases have led to higher fees on Wall Street in some fixed income areas.

European investment banks, including Credit Suisse and Barclays, are discussing the same issues, with executives worried about signing larger bonus packages while there are still no guarantees that regulators will allow them to repay shareholder payments next year, people familiar with their thinking said. .

“It sounds simple to me,” said a London managing director. “The rewards will be weak.” “If banks cannot pay dividends, then big bonuses will be difficult or impossible.”

Johnson & Associates of Johnson said that while the “best” who were not satisfied with their packages could “absolutely” move to another bank or hedge fund, the “good and medium” option would have few options in the current environment. The five banks declined to comment.