Bankers face bleak year of job losses and bonus cuts as deals dry up

Britain’s bankers are facing a year of job cuts and sharply lower bonuses as deals dry up amid a global downturn and political uncertainty.

Rampant inflation and interest rates have dampened appetite for the mergers and acquisitions that fuel earnings for investment banks in New York and London.

Corporate Britain faces the added problem that the country’s reputation for sober economic governance has been damaged by Kwasi Kwarteng’s disastrous mini-Budget.

Slowdown: Rampant inflation and interest rates have dampened appetite for the mergers and acquisitions that fuel earnings for investment banks in New York and London

‘If you were an investment bank in the UK you would be thinking, I have got more people than I need – I only need people if deals are going to be done,’ said Mark Freebairn, partner at the executive recruitment firm Odgers Berndtson.

Freebairn said it was possible confidence could come back later in 2023 but that given the gloomy outlook it would not be prudent ‘to do anything other than plan for a bad situation’ –and one that could get even worse if the global outlook deteriorates further.

It all adds up to a bleak start to the year for bankers on both sides of the Atlantic in the first quarter when bonuses are awarded.

Estimates from the recruitment company Sheffield Haworth indicate they could be 30 per cent to 50 per cent lower than the bumper bonus season last year when the industry surged back from the pandemic with the biggest awards since 2006.

Sophie Scholes, a partner at leadership advisory firm Heidrick & Struggles in London, said that there may be no bonuses at all at some firms.

Reports suggest that after hundreds of job cuts this year thousands more could go in 2023.

Dealmaking has stuttered thanks partly to broad issues such as supply-chain snarl-ups and inflation making life tougher for companies, and partly because higher interest rates are making it harder to use debt to fund takeovers.

International investment bank DC Advisory has predicted that global valuations will come down as that debt becomes more expensive and less available, at the same time as falling confidence in the ability of businesses to be able to deliver on their plans.

DC forecasts a slow first quarter and a first half that is flat compared with the previous year, with activity picking up again in the second half of 2023.

‘Once the market is perceived to be stable, the impact of inflation is better understood and the new valuation reality is established, decisions can be made,’ it said. 

The total value of global mergers and acquisitions in 2022 is already on course to be sharply lower than the record £4.9trillion achieved last year.

By December 20 this year it stood at £3.1trillion, according to Dealogic data.

Freebairn, of Odgers Berndtson, said that the UK faced an additional challenge due to the repercussions of the mini-Budget in September when the then-Chancellor ‘decided to turn the economy into a casino’ with his big bet on tax-cutting to stimulate growth.

However, the perception that prime minister Rishi Sunak and Chancellor Jeremy Hunt have a much firmer grip, as well as Labour’s drive to assure businesses that it has put its Corbynite past behind it, could help restore confidence, he said.

UK-listed companies that earn most of their revenues abroad could prove attractive.

‘Ultimately, the Americans have got an absolute truckload of money and they have got to deploy it somewhere,’ added Freebairn.

‘It won’t take much for the deals to come flooding back in and therefore for the investment bank market to wake back up again.’