London’s investment bankers are expected to rake in bigger bonuses this financial year, as the City begins to recover from a two-year slump in deals caused by surging interest rates.

Demand for investment banking services – such as facilitating mergers and acquisitions, advising companies and governments on fundraising, and underwriting new stock and bonds – was hit by a sharp increase in borrowing rates after the pandemic, as central banks acted to tame runaway inflation. Jobs and pay were cut as investment banks sought to reduce costs.

But the rate hike cycle has ended, with the UK and US expected to begin reducing the cost of borrowing before Christmas. Forecasters say the recent increase in dealmaking is likely to be felt during the spring bonus season.

“The outlook for 2024 is brightening after a promising first quarter and there are signs of capital markets activity thawing after a two-year freeze,” Dartmouth Partners, a recruiter for banks, consulting firms and startups, said in its annual compensation survey covering London investment bankers.

That is likely to mean bigger bonuses for investment bankers at the London offices of “bulge bracket” firms including JP Morgan, Goldman Sachs, and Deutsche Bank, rewarding those who managed to keep their jobs and wait out nearly two years of falling payouts.

“It feels like there’s more of a an upswing happening,” the Dartmouth Partners founder, Logan Naidu, told the Guardian. “Even if the revenue is not quite there, the activity is and I would suspect that compensation would go up on last year. Will it be back up to where it was in 2021-22? I doubt it is going to be that good. But I think it will be better than than last year.”

Naidu said the UK’s decision to scrap the banker bonus cap, which previously limited bonuses to 100% of salaries, would probably mean that salary rises could be replaced with larger bonuses over the long term. “What might happen is base pay starts to get a bit more suppressed, and variable comp starts to become a larger part of the narrative again, which is probably good news for the banks in terms of how they manage their cost base.”

There is still time for most investment bankers to build their bonus pots. While junior analysts will be paid out at the end of the summer, bonus decisions for higher-level staff will be made at the end of the year.

Dartmouth Partners released data showing average pay tumbled last year across most investment banking positions at eight of the major investment banks, ranging from junior-level analysts to more senior associates and vice-president roles.

While lower-paid analysts took home bonuses worth an average of £44,267 in 2023 – marking a near 50% increase compared with a year earlier – mid-tier associates’ bonus payouts fell by nearly a fifth to £80,065 on average, sending their total pay down 8.3% to £213,940.

Meanwhile, some vice-presidents had their bonuses slashed by 22% to £135,183, reducing total average pay by 11.8% to £303,204.

The survey, which interviewed more than 250 London-based bankers – working at Goldman Sachs, JP Morgan, UBS, Barclays, Morgan Stanley, Citi, Deutsche Bank and Bank of America – found that a number of bankers working at European firms were hoping to jump ship to their American rivals, which tend to offer higher overall compensation.

But even Goldman Sachs cut pay for its vice-presidents by 7.6% on average, while its associates were hit by an 8.3% drop. JP Morgan vice-presidents experienced a 7% cut and associate pay fell by 4.6%.

London-based vice-presidents at Morgan Stanley were hit by the largest drop in total pay on average last year, with it falling nearly by 26.8%, followed by Bank of America where vice-president-level pay fell 23.5%.

Global banks collectively cut more than than 600,000 jobs in 2023, making it one of the biggest years for redundancies since the 2007-08 financial crisis.

“Even though bonuses have been poor, many bankers said they are happy to still have a job,” the survey said.

Change in average compensation for vice-presidents, from 2022 to 2023

Bank of America: -23.5%
Barclays: -15.9%
Citi: -2%
Deutsche Bank: -16.8%
Goldman Sachs: -7.6%
JP Morgan: -7%
Morgan Stanley: -26.8%
UBS: -11.9%