The Street's bonus pool is filling up nicely as the bank-owned dealers head into the home stretch of their fiscal years.
Incentive pay figures are buried in recent quarterly financial reports filed by the major Canadian banks. This is money that has been paid out as performance pay, or set aside for year-end bonus cheques. This variable compensation, some of which will be paid in stock, is up 18 per cent at the Big Six banks through the first nine months of fiscal 2009 to $6.4-billion.
However, that headline number doesn't begin to capture what's going on with bonus cheques this year. When it comes to incentive pay, there is Royal Bank of Canada, then there's everyone else.
The bonus pool at Canada's largest bank - to be shared among all 80,000 employees - was up 33 per cent, to $2.74-billion, through the first nine months of this year. In all of 2008, RBC awarded $2.69-billion of variable compensation. Obviously, variable pay is a far larger component of the compensation paid to the deal makers at RBC Dominion Securities than it is for tellers in the branches.
Only one rival, Toronto-Dominion Bank, has set aside more than $1-billion for incentive-based compensation though the first nine months of this year. Canadian Imperial Bank of Commerce trails the Big Five, with just $421-million of performance pay so far this year, while National Bank of Canada, with 17,000 employees compared to 40,000 at CIBC, paid out $393-million in variable compensation.
Here's how the compensation sweepstakes are shaping up, bank by bank, with a quick flick at the two major publicly traded independent houses, Canaccord Capital and GMP Capital.
RBC, as mentioned, paid out $2.7-billion in incentive compensation through the first three quarters, and that's up 33 per cent.
TD Bank boasts $1-billon in performance pay, up 8 per cent from the same period last year. Bank of Montreal paid variable compensation of $998-million, up just 2 per cent.
Bank of Nova Scotia recorded $829-million of incentive pay, up 8 per cent. At $421-million, CIBC's performance-based compensation is up 37 per cent from the same period in 2008. And National Bank has boosted incentive compensation by 6 per cent.
Canaccord's incentive payout actually dropped 17 per cent in the most recent quarter from previous year to $68-million, while the total amount paid to employees at GMP rose 9 per cent to $39-million.
For all the noise around regulating bank compensation - including toothless shareholder say-on-pay initiatives approved at last year's annual meetings - Canadian financial executives are being paid under much the same system they've enjoyed in the past.
And the status quo is likely to remain in place. Industry leaders on Wall Street, the jurisdiction that sets trends on financial services compensation, are already fighting any additional oversight governing what they pay themselves. Goldman Sachs CEO Lloyd Blankfein warned an industry conference in Frankfurt this week that regulatory overkill could choke off economic growth.
(In a delicious save-us-from-ourselves moment, Mr. Blankfein also complained that "multiyear guaranteed employment contracts should be banned entirely. The use of these contracts unfortunately is a common practice in our industry." Banking executives, like major league sports owners, are their own worst enemies on this front.)
Here in Canada, the overarching guideline from regulators is to avoid compensation schemes that encourage risky behaviour: Canadian bank boards and human resources executives have been fine-tuning payouts with that prudent attitude for years.
For employees of investment dealers, that means bonuses will still take flight when times are good. And right now, times are terrific. With six weeks left in fiscal 2009, stock and bond financings are coming at a steady clip - witness the monster deals this week from Barrick Gold and Fairfax Financial - M&A activity is picking up and trading revenues are at record highs.
Mining for money
Mining companies are hitting the capital markets with a vengeance, as uranium play Paladin Energy yesterday launched a $362-million (U.S.) stock sale.
Paladin, which is based in Australia but listed on the Toronto Stock Exchange, hired RBC Dominion Securities and UBS to lead what's known as an overnight marketed financing. The dealers sold shares equal to 15 per cent of Paladin's existing equity capital at a price determined by investor demand.
No one is sleeping at RBC Dominion this week, as the dealer also co-led a $4-billion offering for Barrick Gold.
In a report early yesterday, BMO Nesbitt Burns analyst Edward Sterck said the equity issue should please a market that's become sensitive to debt-heavy companies.
"Paladin's high level of gearing was a concern for some investors," he said. "Fresh capital will take pressure off the balance sheet and should ease any lingering concerns regarding repayment of $250-million of convertible bonds in 2011 and $325-million in 2013."
Paladin said it will use the cash it raised for acquisitions, along with debt reduction. A number of junior uranium companies in Australia saw their stock prices jump yesterday on speculation that Paladin could come calling.
Andrew Willis