Average pay at the biggest firms on Wall Street has plunged from levels before the 2008 financial crisis, despite record profits being posted by U.S. banks, according to a detailed report in Bloomberg. Pay may be headed down yet more as interest rate cuts by the Federal Reserve threaten to dampen profit growth in the financial sector.

Adjusted for average nominal wage growth since 2007, the biggest drops in average pay per employee among the 12 largest U.S. and European banks have been: 61% at Goldman Sachs, 46% at Credit Suisse, 36% at Deutsche Bank, 34% at Morgan Stanley, 32% at UBS, and 21% at JPMorgan. Average adjusted pay fell by 14% across all 12 banks, with investment banking and securities trading personnel taking the biggest hits.

Executive pay also has suffered, as evidenced by Goldman's CEO David Solomon. While his compensation package was a hefty $23 million in 2018, back in 2007 his predecessor earned three times as much.

Significance for Investors

“Business has transformed over the past decade,” as Richard Lipstein, managing director in the financial services practice at recruiting firm Gilbert Tweed International, told Bloomberg. “Traders have been the worst hit as trading isn’t what it used to be. Now jobs are in technology and retail. You may add more employees, but those are not as high-paying as traders,” he added.

Average compensation for mid-level employees in securities trading and institutional sales is half what it was in 2007, now about $400,000 to $800,000, per bank recruiting firm Sheffield Haworth, as reported by Bloomberg. For mid-level investment bankers, pay is down by about a third, now between $600,000 and $950,000, while managing directors now earn about 30% less, averaging $1.5 million to $2 million today, per the same sources.

“There’s still fierce competition for investment bankers because the advisory boutiques have grabbed a lot of market share and can hijack top talent from the big banks,” as Julian Bell, who heads the investment banking practice at Sheffield Haworth, told Bloomberg. “So the full-service banks still have to pay more than they’d like to for their bankers. The same isn’t true for traders as trading revenue and profitability have shrunk and you still need big balance sheets to be successful,” he added.

Tax cuts and robust consumer spending have driven record bank profits in the U.S., and European banks have seen increased lending, Bloomberg notes. However, the industry is rapidly automating, meaning that average pay seems increasingly unlikely to return to pre-crisis levels. Additionally, smaller firms are reducing risk by scaling back trading in favor of consumer banking and wealth management, both of which fields generally produce much smaller pay packets.

Goldman Sachs, has been diversifying from investment banking and trading to consumer banking, credit cards, and transaction services. Credit Suisse is emphasizing wealth management, and is moving various functions to low-cost locations such as India and Poland. Deutsche Bank added 20,000 lower-paid employees in 2010 by acquiring domestic retail bank Deutsche Postbank. Meanwhile, both Deutsche Bank and UBS Group are retreating from Wall Street, radically scaling back trading and investment banking.

Looking Ahead

Amid a cycle of interest rate cuts by the Fed, bank profits are likely to suffer through 2020, Zacks Equity Service warns. JPMorgan Chase & Co. (JPM) and Goldman Sachs Group Inc. (GS) are among the big banks that have reduced their profit projections for upcoming quarters, Zacks notes. Lower earnings inevitably will translate into lower bonuses and perhaps even slower growth in base salaries in the banking sector.