From the eighties up until the financial crisis, being an equities trader was a punch line on Wall Street. If you were one, it meant you sold stocks to customers all day, likely worked out of a satellite office in Chicago or Dallas or another second-tier finance city, and got paid much, much less than your counterparts in the sexy, high-rolling bond division. And that's if you were lucky. If you weren't, you were stuck in low-rent brokerages like the one featured in The Wolf of Wall Street, where you spent all day trying to part fools and their money.
Now, the tables have turned. The Wall Street Journal reports today that stock traders are going to get paid more this year, whereas bond traders, the former top dogs, are whining that they're "working three times as hard for a third of the compensation," according to one expert.
The Journal reports that the hierarchy shift is the result of a stock-market rally during the last few months of the year, a fixed-income slump, and the sense that the good old days of bond trading aren't coming back:
The bond markets went into a tailspin in the middle of 2013 while investors fretted about the future direction of interest rates, drying up trading even further. In addition, tough capital rules and the prospect of new restrictions on the amount of trading banks can do with their own money have directly affected bond traders, who as a group built a reputation for their high-octane, swashbuckling style.
The actual numbers involved in these shifts are fairly small. Bond traders are expected to make 10 percent less this bonus season, while stock traders and investment bankers are expecting anywhere from 5 to 12 percent more than last year. That won't make or break anyone's financial future. ("Sell the Hamptons house, Doris! The Land Rover, too! Sell it all!") But the symbolism can be seen from a mile away: The new alpha males are the ones working in slower, client-focused businesses — investment banking, equities sales, asset management — and the era of the high-flying bond trader is over.
One bright spot for Wall Street workers is that this year's bonuses are more likely to be paid in cash. After the crisis, firms began paying bonuses in deferred stock, which had the dual advantages of looking good to regulators and kicking compensation costs a few years down the road. But at least Morgan Stanley "has decided to start paying a larger chunk of bonuses in cash instead of deferred payments," according to the Journal, and more banks could easily follow suit. That new cash, added to payments given out in previous years that are just now coming due, might make this year's take-home pay greater for some bankers and traders.
Despite the revival of the cash bonus, though, this is still Grinchy news for Wall Street's bond traders, who are used to outearning everyone around them and are now facing the prospect of coming in under people much lower on the totem pole. Banking might not be boring yet, in the systemic sense. But there's no denying that this year, the parts of banking that used to inspire yawns and mockery are poised to clean up.