Canada’s six biggest banks set aside $15.2 billion for bonuses in a “polarizing” year likely to bring joy to investment bankers and a little less cheer for traders and analysts.
The companies lifted variable-compensation pools by 6.5 per cent from last year, down from the jump of almost 11 per cent in 2017 but a bigger increase than in the previous two years, according to financial disclosures for the fiscal year. Canadian Imperial Bank of Commerce and Royal Bank of Canada had the biggest gains in performance-based pay, while Bank of Nova Scotia had the smallest, the filings show.
“This year is going to be a polarizing one, where some firms pay well and others do not,” said Bill Vlaad, president of Vlaad & Co., a Bay Street recruitment firm that monitors compensation trends. “Firms that managed to not have large hiccups outside of Canada in 2018 should lead the way in bonuses.”
Canada’s lenders pay bonuses based on performance, with most of the variable compensation going to capital-markets employees such as investment bankers, research analysts and those in sales and trading. Variable compensation reflects the amount reserved, not paid out, and doesn’t include base salaries. Bonuses are typically distributed in December.
This year’s gain comes as banks posted a record $25.4 billion of revenue from their capital-markets operations for the fiscal year ended Oct. 31, with $4.88 billion gleaned from investment-banking fees and record trading revenue of $10.9 billion.
“The winners this year are investment bankers,” Vlaad said. “The losers continue to be those in sales, trading and research as changing regulations and technologies make their business more and more challenging to be profitable.”
Those in investment banking at most firms should see a 15 per cent to 20 per cent bump in their bonuses, extending a trend of higher payouts during the previous three years, according to Vlaad & Co. Those in sales, trading and research may see bonuses shrink by an equal amount, deepening a three-year downward trajectory for those employees.
Collective annual profit at Canada’s six biggest banks rose 7.4 per cent to a record $45.5 billion for the fiscal year. While that may help bring decent bonuses, shareholders haven’t been so lucky, with the eight-company S&P/TSX Commercial Banks Index falling 5.7 per cent this year along with flagging global markets.
Royal Bank, which has the biggest capital-markets operations among Canada’s lenders, set aside $5.6 billion for variable compensation, up 7.6 per cent from a year ago and the highest amount of any of the companies. That represents a decline from 2017, when bonuses jumped 13.5 per cent. The bigger pool comes as the Toronto-based bank added 3,660 employees this year, including more than 110 senior investment bankers in the U.S. and Europe for its RBC Capital Markets division.
Toronto-Dominion Bank, the country’s largest lender by assets, set aside $2.59 billion for incentive compensation, up 5.6 per cent but less than half of last year’s increase.
Bonuses “are quite driven by revenue performance in the wholesale bank, and in aggregate the bank did so much better, so I expect they’ll be up slightly,” CFO Riaz Ahmed said in a phone interview, adding that the lender also added employees, which is reflected in the increase.
Scotiabank, Canada’s third-largest lender, said performance-based compensation rose 1.6 per cent to $1.62 billion, less than half of last year’s 4 per cent increase. The gain comes in a year when Scotiabank made acquisitions at home and abroad, swelling its employee ranks, while exiting other countries and businesses and scaling back its metals-trading business. Capital-markets revenue at the Toronto-based bank declined 2.1 per cent this year as investment-banking fees slid.
The company declined to comment on bonus payouts.
Bank of Montreal
Bank of Montreal lifted its performance-based compensation 5.2 per cent to $2.51 billion, an increase slightly higher than last year’s. As at Scotiabank, revenue at Bank of Montreal’s BMO Capital Markets division fell, with the 4.7 per cent decline coinciding with a drop in trading and investment-banking fees.
“We had a good year from an income-growth perspective and, with that, some of the performance-compensation numbers will be up,” CFO Tom Flynn said in a Dec. 4 phone interview. The bank also added employees through hiring and the acquisition of New York-based broker-dealer KGS-Alpha Capital Markets. “We’ve got a bigger pool of people who are being paid out of that bucket of money as well, and that’s contributing to some of the growth.”
CIBC boosted its performance-based pay by 13 per cent to $1.97 billion, its second straight year of double-digit increases. The gain comes as the Toronto-based lender expanded further in the U.S. with its June 2017 takeover of Chicago-based PrivateBank.
“We had good performance, so compensation will be in line with that,” CFO Kevin Glass said in a Nov. 29 phone interview. “The big jump you see is more year over year as a result of PrivateBank and the fact that we’ve been with them for a full year.”
National Bank set aside $941 million for variable compensation, up 2.8 per cent. Last year, the increase was 17 per cent. The Montreal-based company’s National Bank Financial division outperformed larger rivals in gains from capital markets, with revenue rising 7.7 per cent. The firm was the only one among its peers with a gain in investment-banking fees, and also had the biggest jump in trading, with a 14 per cent increase.
The bank declined to comment on its bonus payouts.