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Ferragamo’s belt buckles are tightening on Wall Street as bankers brace for a dismal bonus season. Year-end payouts, typically an outsized portion of total financial industry compensation, are expected to fall as mergers and acquisitions dry up, Inflation continues and the risk of recession is growing.
What’s happening: According to a new report from compensation consultancy Johnson Associates, bankers who help companies consolidate could see their bonuses fall about 20% this year, while those who help companies raise new capital could see their paychecks drop by 45% % could register. These numbers are adjusted for inflation.
“This year has been unusually bad,” said Alan Johnson, general manager of Johnson Associates. “I think there will be a whole lot of unhappy people. Some people will look for other jobs… But there will also be layoffs.”
The report compiled by a Analysis of economic data and consultations with the biggest banks and hedge funds said hiring is likely to fall sharply and layoffs are set to begin as the looming recession puts pressure on employers to cut costs.
Why it matters: While bankers may be upset by the news, others may feel a certain glee. After all, an early career salary in the industry is around 200,000 US dollars pre-bonus. But Johnson says you should be concerned about the news even if you don’t work in finance.
Some people might think realtors make too much from home sales, he said, but they still want to sell homes because it’s good for their community, Johnson said. The same goes for bankers, he added.
Dealmaking is usually an indicator of a healthy economic environment.
“This is a canary in the coal mine for the economy, if the canary dies that’s no good for anyone,” Johnson said.
A bigger problem: M&A deal volume has slowed significantly in 2022 as dealmakers struggled to surge Interest rates and a possible recession.
According to Refinitiv, global M&A volume was $642 billion in the third quarter. That’s down 42% sequentially and the lowest volume for the period in a decade.
The M&A market is a leading economic indicator, said Morris DeFeo, chairman of corporate practice at Herrick, Feinstein LLP, a law firm specializing in M&A. “I think a lot about the slowdown [in M&A] was in anticipation of a [shaky] Business.”
What’s next: Weak incentives could lead to banking activity regaining momentum, DeFeo said. “There are a lot of people who are very motivated by incentives on both the funding side and the strategic side to move things forward,” he said. “We will not sit back and see how things develop. That is not the nature of our financial industry.”
Still, it’s unclear whether the industry can overcome market trends such as higher borrowing costs. While analysts expect a modest recovery in 2023, they still expect banking activity to remain relatively weak.
A key measure of US inflation, wholesale prices, rose 8% year over year in October, according to the latest Bureau of Labor Statistics report, reports my colleague Alicia Wallace.
Although still historically high, it was the smallest increase since July last year and significantly better than forecasts.
President Joe Biden announced the October PPI report on Tuesday, calling it “more good news for our economy this morning and more signs that we’re starting to see moderate inflation.”
“Today’s news — that prices paid by businesses have eased over the past month — comes a week after news that prices paid by consumers have also eased,” Biden wrote on Tuesday. “And today’s report also showed that food inflation has slowed – a welcome sign for family grocery bills as we head for the holidays.”
This is the second inflation report this month to show signs of cooling off from the rising prices that have been plaguing the economy. Last week’s consumer price index rose 7.7% for the year ended October, a much slower pace of growth than economists had expected at 8% and the lowest annual inflation reading since January.
Fed Vice Chairman Lael Brainard said the CPI data was “reassuring” on Monday, signaling that rate hikes appear to be taking hold. if Economic data continues to show falling inflation, then the central bank could scale back the extent of its future interest rate hikes.
Amazon on Tuesday launched a virtual clinic to treat common health issues, including allergies, acne and hair loss, in the e-commerce giant’s latest move to expand its reach into the healthcare industry, my colleague Catherine Thorbecke reports.
The service, called Amazon Clinic, is a “message-based virtual care” option designed to “connect clients with affordable virtual care options when and how they need them,” said Dr. Nworah Ayogu, chief medical officer and general manager of the new service, said in a blog post.
In recent years, Amazon has gradually expanded its presence in healthcare. It acquired online pharmacy PillPack in 2018 and later launched his own digital pharmacy, Amazon Pharmacy, in 2019. Earlier this year, Amazon agreed to acquire One Medical, a membership-based primary care service, for $3.9 billion.
The big picture: Amazon isn’t the only big tech trying to cash in on a slice of the healthcare industry.
Google (GOOGL) shut down its healthcare division last summer after being criticized for lacking guidance. It moved a number of healthcare projects to other parts of the company.
Alibaba (BABA) and JD.com (JD) also operate online pharmacies.