Investment bankers are still smarting from Europe's crackdown on bonuses, and not just because this year's cash rewards were smaller than before many now risk losing their jobs as a result of these very reforms.
A big hike in salaries over the last 12 months aimed at softening the blow from tougher bonus rules has left banks with an inflexible cost base they now need to slash after revenues shrank during a rough second-quarter.
The recent rise in fixed costs is limiting leeway they might have had to do this by adjusting bonus pots, leading to even more pressure to cut jobs.
"Salary rises were a panic move when banks were pressured into ways of limiting bonuses," said Jason Kennedy, who runs financial recruitment firm Kennedy Associates.
"That's fine when you have growth. But now they have mammoth costs bases and it's come back to bite them in the rear."
It's a particular headache for European banks, where regulators brought in stringent rules this year limiting the amount of upfront cash bankers get through bonuses by deferring big chunks of them and paying the bulk in stock.
The result was a huge inflation in salaries. An average managing dir-ector might now get £300,000 (Dh1.78 million) to £400,000 in base salary as opposed to £175,000 four years ago, Kennedy said.
At UBS and Credit Suisse, fixed costs could rise to 65 per cent and 82 per cent of total compensation, respectively, in their investment banks this year from 55 per cent and 66 per cent in 2009, according to a recent JPMorgan analysis.
An increase in deferred payouts will also add to these pressures.
The 2010 bonus round saw a bigger wave of zero bonuses than had been seen for many years, and rewards often only went to star performers.
A weak three months for trading businesses, battered by sovereign debt woes in Europe, has proved the tipping point for the biggest round of job cuts in investment banking since the height of the financial crisis, after two years of hiring.
From Goldman Sachs in the US to Credit Suisse and UBS, banks have started cutting, with the two Swiss banks close to shedding thousands more staff.
This time, it's also senior staff on the advisory desks who are feeling the heat.
From / Gulf News