News & Press - Tuesday, January 19, 2010 6:50 - 0 Comments

Bonuses worth 12% less than last year

Bankers and City workers due to receive bonuses or vested stock in US dollars will find their lump sums are worth around 12% less in sterling terms than in 2009.

In January 2009, £1 would have cost you only $1.45 but this year, it is currently around $1.62.

Elisabeth Dobson, head of private clients at foreign exchange broker World First says, “We have already spoken to many bankers who will be receiving cash bonuses or vested stock in a foreign currency and need to convert  it into another currency. For example, some of the US banks, namely Goldman Sachs and JP Morgan, will pay some cash bonuses and stock in US dollars. Staff based in the UK will want to convert this into sterling and will look to hedge their exposure to exchange rates.

“In the first three months of 2009, the months in which announcements about bonuses and stock are made, World First experienced an uptick of 23% of people wanting to book forward contracts to secure the US dollar is still strong against the pound – the long term average exchange rate between the two is 1.75 to 1.80.”

This time of year is typically when annual bonuses are announced and when those with vested stock can decide whether to exercise and cash in their stock from previous years’ bonuses.  Cash and stock payments are usually made to employees between January and March.

“It is inevitable that most bankers will indeed get another sizeable bonus this year.” Elisabeth continues. “As has been widely reported, the banks have made good money in 2009 and their staff will be rewarded, despite the Bankers’ Tax announced at the recent Pre-Budget Report.”

Elisabeth adds, “In addition to forward contracts some bankers have been keen to talk about our options structures.  The are like forward contracts in that you can secure an exchange rate now for a date in the future but they also allow you to benefit from any improvement in the rate.”

As well as bankers and City workers looking to convert US dollars we also have a larger number of clients who receive sterling bonuses and will look to invest overseas, buy a second home or holiday home, pay off an overseas mortgage or convert and send funds back to their country of origin if they are living in the UK.  We have had an increase in transactions and enquiries of this nature.