Hard times on Wall Street as pay cuts, layoffs loom

Wall Street Pay – Trending Low

Latest report from compensation consultant Johnson Associates indicates that Wall Street pay tends to be trending lower this year as frail first quarter earnings, strong business environment and regulatory restraints will cause in slashes in almost all the trade’s lines of business. Managing director of Johnson Associates, Alan Johnson stated that this is the first time since the financial crisis that they have seen everyone trend down. The report is established on the results from the first three months of the year and hence the viewpoint could alter, according to Johnson.

But he did note that is a psychological change amidst the clients of his firm.Financial companies believe that the environment could be harder ahead; marked by more opposition, low interest rates for extended and extra regulation. Johnson has stated that there seems to be a lengthy list of things and that their clients have put them together saying that it is just going to become harder. According to report, in the financial industry, incentive pay will drop between 5% and 20% this year and the exemption to it will be in retail as well as commercial banking where the pay would be flat to around 5%.

Year Ahead Fair Amount of More Job Cuts

Johnson had mentioned that this area moves more with the cost of living and that the sector has been performing well. On the other hand, pay in investment bank would weaken between 10% and 20% though compensation in sales and trading is said to drop 5% to 20%, as per report and it is not only investment bankers perceived in taking a pay cut, since hedge fund compensation is projected to decline by 5 – 15%.

The pay for asset managers is seen off at 5% to 10% owing to weak inflows together with lower to flat appreciation in assets under the category of management. Together with pay being cut, payrolls would also be trimmed according to Johnson. He further added that it is quieter than in the past, though it seems to occur as one speaks. This year and ahead there will be a fair amount of more job cuts.

Global Mergers/Acquisitions – Volume Plunge 20%

Most of the financial companies are persistently reducing head count in places inclusive of London and New York since the cities tend to be too expensive, deciding to cut on jobs or move the workers to lower-cost centres. According to financial services data firm Dealogic, global investment banking businesses seemed to suffer the slowest first quarter since 2009.

The almost$750 billion in global mergers as well as acquisitions signified a volume plunge of 20% year over year, as per Dealogic report recently. The analysts stated that banking revenue was affected by a combination of slow start to the years’ M&A, weak high-yield debt issuance together with lingering weakness in the trading operations of banks. Making matter worse was the trading desk revenue which had been shrinking at several top banks.

Morgan Stanley had revealed plans of reducing head count in its fixed income, currency as well as commodities trading operation as a measure of a broader plan of streamlining operations and generating savings. But the stock of the bank had recovered from early February lows, and the shares are yet down by about 20% on the year. No comments have been provided by representatives of Morgan Stanley.

Should We be worried about our Pensions

Pension Scheme – Attention on Health of Final Salary Pension

The efforts of BHS together with its pension scheme have drawn attention on the health of final salary pensions. Over the years, 20,462 members of BHS staff right from shop workers to executives have paid into the BHS final salary pension scheme and now will receive less during retirement than they had expected. The scheme which is said to be like a black hole or deficit of £571m is presently in the hands of the Pension Protection Fund – PPF, which is a lifeboat organisation that tends to step in when companies seem to be ruined.

The BHS scheme is considered to be only one of thousands of final salary pension schemes linked to companies all over UK, schemes that guarantee to pay retirement income depending on certain percentage of the ultimate salary each year for the rest of your life. Latest figure of the PPF portrays that UK final salary pension schemes tend to have a collective deficit of £302bn and there are 4,891 schemes in deficit when compared with 1,054 in excess. It is a bit doubtful that some may be struggling. Joe Dabrowski from the Pensions and Lifetime Savings Association – PLSA which is the trade body for pension schemes has stated that schemes are facing challenging times.

Calum Cooper of pension consultancy Hymans Robertson portrays a bleak picture. He states that there are between 600 and 1,000 final salary pension schemes at risk of not being capable of paying the pension of their members at the time of their retirement and this is a very substantial number which puts over a million pensions as well as the jobs at risk.

Experts agree that there seems to be two main causes of the black hole in final salary pension schemes. The first is comparatively simple; people are living for longer period which makes pensions more expensive for companies since they are paying the pensioners for a longer period. The second main issue is the uncertain economic position wherein pension schemes tend to depend on the contributions from employees being invented successfully. Long period of low interest rates together with volatile markets have made it difficult in making money from investing.

Pension Schemes Related to Performance & Strength of Parent Company

Mr Cooper states that the final salary schemes pushed in £30bn in the last year in an attempt to make up for poor returns though it has not gone more than a fraction of the way in ensuring things are evened up. Senior partner at actuarial consultants Lane, Clark and Peacock, Bob Scott informed that another problem is `over-regulation’. He stated that this added to the problems for businesses attempting to keep schemes in good health.

According to Tom McPhail, head of retirement policy at investment company Hargreaves Lansdown informs that there is a wider threat considering the design of final salary schemes. He states that were there many more schemes to get into trouble, they would seem to be very expensive to rescue.

He adds that the challenge is whether it is accepted that there will be these constant failures maybe ultimately putting the subsidy of the PPF itself under pressure. Pension schemes are related to the performance and strength of their parent company as pointed out by Mr Cooper, deficits of some schemes tend to be larger than the actual business supporting them.

Too Much Dividend can be a Turnoff, say Investors

European Companies – Highest Amount of Dividends

European companies have been paying the highest amount of their earning by way of dividends in over 40 years fuelling fear among analyst on whether such kinds of pay-outs are viable. Investors have for a long time dealt with queries of what companies need to do with the escalating cash load, to return it to shareholders or spend it on technology, research and development, top staff or bolting on new business for the future growth.

For the past five years income-hungry investors received dividends from the European firms and the pay-outs offered a solution to the combination of sluggish economic growth, aggressive central bank policy, enabling what had pushed bond yields to record lows and changing stock markets.

However, the growing cut off between earnings as well as dividends together with worries which companies would be adding debt to fund the shortfall was urging a reconsideration of this proposal. Senior research manager at S&P Global Market Intelligence Julien Jarmoszko stated that they were seeing a lot of companies trapped into their dividend policy.As per Thomson Reuters’ data, almost 60% of Europe Inc.’s earnings per share had been returned to the shareholders as dividends.

Cautionary Sign to Companies – Investors to Stop Rewarding Capital Returns

Companies’ partiality regarding dividends is in no small amount fuelled by investors encouraging companies to part with cash due to restricted opportunities for capital spending. However a shift is in progress. Last month’s Bank of America-Merrill Lynch survey of global fund managers, in one of the cautionary sign to companies that tend to borrow to fund buybacks and dividends, had suggested that investors may stop rewarding capital returns to the same degree as done earlier.

Net percentage of fund managers saying pay-out ratios to be `too high’, had been at the highest level since March 2009. Fund managers instead are progressively searching for earnings and rewarding companies which are either reinvesting back profits in order to expand their business or those which have cut pay-outs to protect their balance sheets.

Tim Crockford, lead manager of the Hermes Europe Ex-UK Equity Fund had said that they like companies which do not essentially pay too much of their cash flow out since they have good opportunities of investing in fixed capital, generating higher returns in the future through these investments.

Leaner Balance Sheets Indicates Substantial Shift

Crockford pointed out Spanish Technology Company Amadeus IT and German laboratory equipment company Sartorius as good examples. For instance, Amadeus had spent money for investment in its IT business, making the services of the firm much more appealing to customers like airlines.

In the meantime, some commodity connected firms that had cut dividends in an effort todeal with the slump in metals prices had seen their share prices gathering. Glencore that had lost more than half of its value last year before suspending dividends in September, had profited by 13% since then. BHP Billiton had gained 30% since cutting its dividend in February.

The inclination of accepting lower or no dividends in favour of leaner balance sheets indicates a substantial shift. Besides, it would also signal to European firms that attempts to spend on themselves and getting in front of a pickup in growth would be compensated while stubborn reliance on pay-outs would not.