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The new threat to bonuses on the trading floor: big losses in December

As bonus announcements draw into view at US banks, insiders are cautioning that events in mid-December may prompt last minute tweaks to the bonus pool.

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The events in question concern Argentina and, in particular, the devaluation of the peso by more than half on December 13th. While some decline in the value of the peso was expected, the extent of the fall was more than widely anticipated. 

Many banks, including Citi, are thought to have made losses as a result. Citi declined to comment on the claims. The bank's 10Q filing for third quarter of 2023 states that it suffered a $180m 'net negative impact' to its investment in Argentina after the currency was devalued 27% in the third quarter and that it could incur a "significant loss" if the exchange rate converged with the level then implied by the market. 

The December losses come as most banks have been juggling a challenging bonus year after revenues fell in all key business divisions. Market intelligence firm Coalition is predicting an 8% decline in investment banking division and equities revenues in full year 2023 versus 2022 and a 5% decline in fixed income currencies and commodities revenues. 

The Argentinian losses will have impacted emerging markets FX and macro desks, where Coalition says revenues were already down in the absence of 2022's one off gains relating to the Russia/Ukraine war; it says Latin American revenues had been more stable in the third quarter, however.

Banks have typically finalized bonus pools at this point in the cycle. However, there is still time for small final tweaks. "These losses are significant," says one insider. "All banks with exposure to Argentina have the same problem."

Our bonus expectations survey suggested that macro traders are most optimistic about their bonuses. On average, they are expecting a 27% increase on last year.  

Many banks had made minimal trading losses in the first nine months of 2023. At Goldman Sachs, for example, there were only 47 days with a loss exceeding $100m in the first nine months, compared to 77 in 2022. 

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AUTHORSarah Butcher Global Editor

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