Bonus issue: bank bosses hold the line on comp
Rupak Ghose
A quick glance at investment bank share prices over the past year tells a story: business is booming and the outlook is rosy. The question now, in the middle of reporting and bonus season, is how much of the profits will bank bosses have to give away to their staff.
Unsurprisingly, given the good performance, expectations among bankers are high. So it was interesting to see that when US banks reported results last week, costs grew but relative to increased revenues it was disciplined.
Both Goldman Sachs’ global banking and markets business and Morgan Stanley’s equivalent institutional securities business delivered 18% year-on-year revenue growth in 2025. And yet Goldman’s business saw costs grow by 15% while Morgan Stanley's saw 13% overall cost growth and 13% compensation cost growth.
Citigroup’s markets division saw similar positive jaws with revenue growth of 11% pacing ahead of 7% cost growth. What was surprising – particularly given the continued senior external hiring – was that costs for the corporate and investment banking division at Citigroup were flat year on year, lagging the 19% revenue growth in investment banking (and even higher growth in corporate banking revenues). Perhaps even more surprising was Citi showing cost discipline in a business that has traditionally lagged both competitors and other Citi businesses in terms of profitability.
At Bank of America, cost growth in its markets business of 10%–11% was in line with revenue growth. Investment banking sits within a large global banking division, but cost growth there was limited in 2025.
Talent war
In recent months, the whisper had been that, given the unpredictability of trading revenues and the expected pickup in dealflow in 2026, the markets businesses would subsidise the talent war in investment banking. It doesn’t look like that is happening.
There is fierce competition to grow prime brokerage, and strong hiring by short-term trading-focused hedge funds and electronic proprietary trading firms, so banks must be conscious about retaining their best hedge fund account managers, traders, quants and technologists.
Wall Street pay consultancy Johnson Associates estimated in November that 2025 annual bonuses would increase 15%–25% for equities, 5%–15% for FICC, 5%–15% for DCM, 5%–8% for ECM and 10%–15% for M&A.
Banks don’t break out compensation costs at that level of granularity for obvious reasons. But if there is one area that may positively (from bankers’ point of view) surprise relative to Johnson Associates estimates, it’s M&A where dealflow picked up meaningfully in the final quarter of 2025 and revenues from many of those deals are still to be booked.
Following strong Q4 results, the median revenue growth for the Big Five US investment banks for 2025 was 22% for equities, 8.5% for FICC, 13% for DCM, 5% for ECM and 25% for M&A.
Performance gap
What earnings season has demonstrated so far is that the gaps in performance were often bigger between businesses than between business lines. For instance, in equities the best performer was JP Morgan up 33% on the previous year, and the worst performer was Citi up 13%. In M&A, Citi was up 53% and Goldman up 35% while JP Morgan was only up 6%. In DCM Morgan Stanley was up 26% while Citigroup was up only 6%.
Similarly, there is likely to be a geographical variance, with the US and Asian businesses having performed better than the European franchises.
Morgan Stanley handed out bonuses to its bankers in the first business week of the year and Bloomberg reported average increases of 20% in Asia while Financial News reported 10%–15% for Morgan Stanley’s London staff. Not only has Asia been busier, but Morgan Stanley has done particularly well there recently relative to competitors.
The annual bonus season drags on until the European banks report 2025 results, but the early signs are that those banks have also been generous, but not too generous.
A relief for investment banking heads is that private market giants are likely to be more selective on hiring experienced sellsiders with a focus likely on those with skillsets in growth equity, infrastructure and private credit.
But competition for talent remains fierce with advisory boutiques like Evercore and PJT Partners. Among the big banks only HSBC is retrenching. As well as Citi, Wells Fargo (IFR’s Bank of the Year) is also adding dealmakers.
Investment banks have to follow a more careful balancing act than usual, given the sharp increase in bank share prices over the last year and expectations of AI-driven efficiency savings. When JP Morgan warned in late 2025, that 2026 cost growth would be higher than market expectations, the stock took an immediate hit. That illustrates the tightrope bank bosses have got to walk.
Rupak Ghose is a corporate adviser and former financials research analyst. Read his Substack blog here.