The increasingly controversial issue of bank bonuses will be kept in the spotlight next week as the US bank annual results season gets into full swing.
Public and political anger is mounting on this side of the Atlantic amid reports banks are preparing to return to big handouts in this year’s bonus round – and the American sector will be watched closely as an indicator of what is in store from UK players.
JP Morgan Chase & Co set the tone after it revealed a 48% leap in 2010 profits to 17.4 billion US dollars (£11 billion) – and said its bill for pay and bonuses hit a mammoth 28.1 billion dollars (£17.7 billion) for the year.
Its investment bankers alone saw compensation more than treble year-on-year in the fourth quarter, despite a 21% fall in the division’s net income. But the bank’s overall results were better than expected, with further improvements since the financial crisis as revenue increased and it set aside less to cover bad debts.
Lower loan losses are expected to be a key theme throughout the US sector, as will trading revenues after third quarter results revealed a sharp slowdown.
JP Morgan gave hope that trading revenues picked up across the board, after its investment banking arm saw a 17% rise between the third and fourth quarter, although there concerns over weak fixed-income trading for some players.
US giant Citibank and investment banking star Goldman Sachs kick off the week’s reporting on Tuesday and Wednesday respectively. Citi – part-state owned after being bailed out by the US government during the financial crisis – clawed its way back into profit with earnings of 2.15 billion US dollars (£1.4 billion) in the third quarter against steep losses a year before thanks to a further fall in bad debts.
But earnings were 20% lower than the previous three months after a 17% drop in its securities and banking arm profits as the boom in fees seen after the recovery slowed. This was a similar trend at Goldman Sachs, but bonuses will take centre stage for the firm, which employs 5,500 staff in London. It had already earmarked 13.1 billion US dollars (£8.3 billion) for the first nine months of 2010.
Goldman also recently announced plans to disclose more than it has ever done on how it makes money following criticism in the wake of the financial crisis. Starting with its fourth quarter results, it will outline how much revenue it generates from its own trading and investing.
Fellow Wall Street giants Morgan Stanley and Bank of America follow with their results on Thursday and Friday, capping a key week for the global banking sector.