Trump's second term could drag some Wall Street bonuses down by as much as 20%, a new report warns

• Wall Street bonuses are on track to fall this year, a new report predicts.
• Johnson Associates' annual year-end bonus report is an important bellwether for Wall Street.
• Among its predictions: IB bonuses could be down 7.5%, while hedge funds may fall by 10%.

So much for the Trump bump.

Wall Street bonuses are on track to be in the red this year as Trump's tariff policies continue to keep corporate boards on the sidelines when it comes to dealmaking and fundraising, according to a report from industry compensation consultancy Johnson Associates.

The report, released on Thursday, warned that bonuses will be down across a number of sectors, from investment banking to private equity dealmaking. The only bright spot, the report said, will be the desks that execute trades on behalf of large investors, which have seen a jump in activity thanks to stock and bond market volatility.

Banks and investment firms could be flat or down between 2.5% to 10% compared to last year's dizzyingly high numbers, the report predicted. In 2024, the average bonus for employees in New York City's securities industry rose to $244,700, up 31.5% from the year before, a separate report released last month by the New York State Comptroller found.

Johnson's latest report warned of several headwinds facing Wall Street's year-end pay, from a dimmer outlook for M&A to investors' efforts to stave off risk to their portfolios.

"No one saw this coming," Alan Johnson, founder of Johnson Associates, told Business Insider of the about-face from this year's apparently dashed expectations.

"I think people will be very disappointed, because I think the perception is this is self-inflicted," he added. "The continued uncertainty will increase the stress levels of different firms and individuals. Will this end? When will it end? How will it end?"

Wall Street had priced in good fortunes as Trump came to power, but instead, his policy decisions have thrashed global indexes and corroded investor and board member confidence. Large swathes of dealmaking have been halted.

Johnson Associates laid out three possible paths, coalescing around a 50% likelihood of its "base case" — some tariffs and trade war uncertainty persisting throughout the year, but still some "muted economic growth." This path could drag down Wall Street bonuses between 5% to 10%, Johnson's report asserted.

But it also warned of a worse picture: a 30% chance of a more severe outcome involving a "broad trade war" and recession that would produce "significant market declines / layoffs." This could result in a "sharp decline" of 15% to 20%.

Here are more details from the Johnson Associates report.

Investment banking: Down between 5% to 20%

Johnson's report predicts that investment banking bonuses will be "down broadly."

Bonuses in advisory — the segment of investment banking handling corporate mergers and acquisitions — could sink between 5% to 10% from last year's levels, the report said, pointing to an "expected M&A 'mania'" that has left market participants deflated as a result of "economic uncertainty."

Other segments of the business are also expected to feel the pain. Equity underwriting bonuses could plummet between 10% and 20% amid a locked-up IPO market, the report continued.

Trading: Up between 5% to 25%

The bright spot in banking that Johnson's report pointed to was equities and fixed income trading. "The traders certainly are the winners," Johnson told BI. "They're always the beneficiary of the volatility."

Trading revenues have soared in recent weeks — as many investment banks reported during their recent earnings disclosures — as volatility has driven some investors to rejigger their positions.

Equity sales and trading bonuses could be up between 15% to 25%, the report said, predicting slightly more modest increases in fixed income sales and trading (10% to 20%); and debt underwriting (5% to 10%).

Asset and wealth management: Down between 2.5% to 10%

Financial advisors' bonuses could be down between 2.5% and 7.5%, Johnson said — less than other sectors, because their clients are more resistant to short-term market shocks and are playing the long game with their investments, he explained.

The picture is tougher for asset managers that expose clients' retirement accounts to products like ETFs and index funds, he continued, citing investors' efforts to derisk by shifting away from stocks in lieu of bonds. Here, Johnson predicts a reduction of 5% to 10%.

Private equity: Down between 2.5% to 10%, some areas like credit expected to remain flat

Large private equity firms are expected to see bonuses dip by 2.5% (for real estate strategies) up to 10% at small- to midsize firms.

Most PE firms have been reticent to deploy their war chests of accrued capital amid prolonged uncertainty. The smaller firms have had a tougher time raising capital than their larger counterparts, meaning small- and midsize firms could feel the pain the most. "The rich have gotten richer in recent years" as mega-funds have gobbled up the lion's share of available capital, Johnson said.

Larger firms could also benefit from more diversification across their products, like in private credit. In this segment of lending, bonuses are expected to be flat, not down, thanks to "strong demand for talent" and sustained interest in the space.

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