US sets trend for high bonuses

Forex dealers anticipate year-on-year increases of up to 50% in their annual packages, on the back of a highly lucrative year in foreign exchange as major and emerging markets currencies went haywire. An unusually active fourth quarter in particular boosted many traders’ profit and loss accounts as they wound down for year-end, sending up bonus expectations accordingly.

"December has been a very good month and foreign exchange has had a nice solid rebounding year at most shops," said one head of foreign exchange options at a bank in the US. "People should expect a 30–50% increase on bonus payouts from last year."

Goldman Sachs, Merrill Lynch, Morgan Stanley and Lehman Brothers were among the banks that announced their bonus payouts in December. Although none would comment on specific divisions, anecdotal evidence suggests forex dealers at these banks, in line with hugely successful fixed-income groups, had much to celebrate over the Christmas break.

Peers at rival banks reported that forex dealers at Morgan Stanley saw average year-on-year rises of 20%, while the very top staff in foreign exchange and derivatives may have seen as much as $9 million each. "This type of figure is not inconceivable at the top three or four banks," said one head of foreign exchange at a US bank in New York.

Those most likely to see the highest awards are banks with large proprietary trading businesses, said one official in New York.

Although packages are based on individual performance, banks with soaring foreign exchange revenues – and proprietary trading has been a huge contributor to that this year – will have much bigger pools of cash available.

"Here, people are paid according to their individual performance but overall the bonuses should be higher – the bonus pools are larger this year because revenues pretty much across the board in fixed income and foreign exchange have increased," said the head of forex at a US bank in New York.

Good news in dealers’ bonus packages this year comes after two years of disappointment for many – and a particularly difficult year for forex in 2002, which saw some dealers’ bonus payments slashed by half.