Wall Street is bracing for widespread bonus reductions in 2025, marking a sharp shift from earlier projections. Just six months ago, many firms were optimistic about stronger payouts. Now, that outlook has reversed, with bonuses expected to fall across almost all major financial sectors.
Biggest Declines Hit IPO Bankers
Initial public offering (IPO) bankers are projected to see the largest bonus cuts. According to compensation consultancy Johnson Associates, their bonuses may drop by as much as 20% compared to last year. This is a dramatic turn from the firm’s earlier prediction in late 2024, when a 25% increase had been forecasted.
Alan Johnson, managing director at Johnson Associates, expressed cautious hope for a rebound. “Hopefully we’ll look back in three or six months and admit we were dead wrong and things will be much better,” he told Yahoo Finance. “That’s what we’ve been hoping for, but I wouldn’t bet on it,” he added.
Market Volatility Stalls Deals
Deal-making has slowed significantly in recent months, particularly IPOs. The slowdown follows heightened market volatility triggered by President Trump’s announcement of sweeping “reciprocal” tariffs last month. These trade measures have rattled global markets and discouraged companies from pursuing new stock listings.
Johnson warned that these developments could also hinder private equity firms from generating strong returns for investors. Although markets have since partially recovered, many firms remain hesitant to move forward with offerings due to ongoing trade uncertainties.
Financial Stocks Suffer
Since the start of the year, shares of many financial institutions have fallen. Private asset managers like Apollo (APO), Blackstone (BX), and KKR (KKR) have experienced some of the biggest losses. Regional banks have also taken a hit.
(Disclosure: Yahoo Finance is owned by Apollo Global Management.)
Pay Cuts Extend Beyond IPOs
The anticipated bonus declines are not limited to IPO bankers. Hedge fund professionals, asset managers, M&A advisors, commercial and retail bankers, and even corporate staff are likely to see bonuses fall by up to 10%. The trend reflects a cautious mood across the entire financial services industry.
Traders Stand to Gain
Amid the downturn, one group may benefit: traders. Those involved in equity markets and trading strategies could see bonuses rise by as much as 25%, Johnson Associates said. Firms that underwrite debt or operate in secondary markets may also fare better, thanks to increased volatility.
Outlook Turns Cautious
The new projections mark a significant shift from expectations in November 2024, when Johnson Associates forecast widespread bonus growth for 2025. At that time, 2025 was expected to be one of the best years for financial sector compensation in half a decade.
However, the current assessment is clouded by uncertainty. Johnson’s report emphasizes that future developments will depend heavily on the outcome of global trade negotiations and broader geopolitical risks.
Trade and Fed Policy Add Pressure
Last week, the Trump administration announced a trade agreement with the United Kingdom. It was the first deal since the U.S. introduced reciprocal tariffs in April. A day earlier, the Federal Reserve decided to keep interest rates steady, citing the need to monitor trade developments. Despite concerns about inflation and rising unemployment, the Fed opted for a “wait and see” approach.
Bonuses Fell After 2021 Peak
After a record-setting year in 2021, bonuses fell sharply in 2022. Underwriters experienced the most severe declines. In 2023 and 2024, bonuses either remained flat or dropped further. However, a partial recovery in investment banking and rising trading fees offered some hope.
Hiring May Slow, Layoffs Possible
Looking ahead, Johnson Associates expects the 2025 compensation drop to be the steepest since 2022. This downturn could affect employment levels across Wall Street.
“Our base case is for a significant reduction in hiring and some layoffs,” Johnson said.
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