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It looks like a lean year at BofA.

BofA traders' bonuses may disappoint, despite a great quarter

Last year was special. This year may not be so much. After compensating its traders handsomely in the last bonus round to make amends for their comparatively paltry bonuses in the bonus round before that, Bank of America may well take a less generous approach for 2022. 

BofA's third quarter results, released today, reveal that some people in its trading business had an exceptional third quarter. Revenues in its macro trading business were up 67% year-on-year, and there were no loss making trading days. The bank made trading profits of over $25m on 94% of days in the three months to the end of September.

BofA said macro traders' out-performance offset a more shaky quarter for its credit and securitization business. The strong macro performance meant that BofA's fixed income sales and trading revenues rose 27% year-on-year, versus a 1% increase at Citi, a 22% increase at JPMorgan and a 33% increase at Morgan Stanley.

Despite BofA's late great performance in macro trading, however, its fixed income traders are still lagging rivals for 2022 as a whole. Only Citi's traders have performed worse year to date.

With fees earned in Bank of America's investment banking business down 37% year-on-year in the first nine months, the comparative weakness in the fixed income trading business will leave the bank with less room to maneuver when it comes to bonuses. BofA needs to hope its traders have short memories and that last year's generosity looms larger than the stinginess that preceded it.

Photo by Taylor Simpson on Unsplash

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AUTHORSarah Butcher Global Editor
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  • op
    opex
    30 October 2022

    Cost-cutting will help Bank of America Global Markets improve operational efficiency

    Costs are increasing as revenues are being constrained. Reduced personnel costs are necessary. Efficiency Overhead Ratio% for Bank of America was 62.45%. JPMorgan Chase, Bank of America's other top-performing rival, has maintained a below-sixty percent rate. Also, According to Tricumen data, the Bank of America Global Markets division likewise has a lower operating revenue per employee ratio than its American competitors. What can Bank of America Global Markets business therefore do to reduce its high costs and enhance operational excellence?

    The solution is straightforward: the company downsizes and trims its workforce, particularly the middle management.

    Bank of America's aggressive hiring practices over the last three years have increased bureaucracy and reduced efficiency. Many recently hired middle level managers only perform mediocrely while receiving a unreasonable high compensation. The following benefits to business will result from eliminating moderate amount of middle level managers:

    I. Cutting down on operational risk. It is necessary to make decisions in a more methodical and less arbitrary and discretionary manner. In contrast to senior management, middle level managers' income is not heavily based on the performance of BAC stock. Therefore, there is a conflict of interest by nature. Middle level managers frequently act in their own best interests rather than those of the company, which can harm the business financially and repeatedly. They can use company resource to build their own business and then join the competitor turn against BAC. Increasing the stock portion of bonuses and extending the vesting period are two ways to address this issue.

    II. Boost operational efficiency. Some managers are expensive, it’s difficult to prove their worth. Eliminating them won't have an impact on organic revenue growth, but it will save the organization a lot of money. A boss should not have fewer than five reports. It is a waste otherwise.

    III. Building a better workplace culture. More middle managers than necessary lead to more politics and conflict. Your employees will be less motivated, more likely to make mistakes, and talk negatively about the organization if there is a toxic work environment. Additionally, if employees believe that the workplace is toxic and political, they will leave and join the competitor. If his team members are keep leaving the company in short period of time, then manager's ability to lead is highly questionable.

    IIII. Boost productivity and fairness. The quantity of pointless meetings and the number of managers are directly correlated. Everyone's time was squandered in these meetings. Additionally, some managers let their reports do all the work while they chat and browse the internet throughout the day. They then claim credit if the outcome is favorable and place the blame elsewhere. It is unfair and will lower employee motivation. Some managers who were hired from outside the company received fast promotions without demonstrating any real business results, which is unfair to veterans with a track record of success. What is the right thing to do? Removing managers who receive hasty promotions via PPT full of fictitious phrases and managers who are just skilled at making excuses, and then giving opportunities to staff who have proven track records of achievement.

    Middle-level managers are somewhat necessary, but not overly so. Bank of America Global Markets business expanded too fast in past several years but revenue are expected to falter in following years. In order to improve business performance, operational excellence, risk management, and workplace culture for Bank of America Global Markets, middle level management downsize is required.

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