The wages of finance to fall by a third as regulation bites

SALARIES in European investment banks will have to fall by as much as a third as institutions fight to retain their level of return on equity in the face of harsh new regulation, analysts at JP Morgan said yesterday.

Banks are likely to cut compensation levels drastically from 2012 as they see their return on equity slump by half to eight per cent amid new regulatory regimes such as Basel III and Dodd-Frank in the US.

In a sweeping outlook on the European banking market, the analysts warned they expect banks including Goldman Sachs, BNP Paribas and Barclays to take drastic steps to bring their return on equity ratios back to a more attractive 13 per cent.

The average banker’s pay is likely to be cut by nearly a third, or $100,000 (£64,000) per year, to bring compensation ratios down from about 45 per cent at present to closer to 25 per cent.

Headcount is likely to be cut by 20 per cent – meaning 4,314 job losses at Goldman and 5,061 at Barclays – and cost to income ratios should fall from about 70 per cent at the eight big investment banks, to about 55 per cent.