There's a lot of talk about the bonuses that bankers are being paid these days. There's also a question that no one is asking, however, which is: where do these bonuses come from? After all, even if I pay, say, 5% or even 10% on my overdraft, it's going to take a lot of very big overdrafts to finance some of the bonus payments we keep hearing about.
At least part of the answer to the question of where these bonuses come from can be found in recent articles in The Financial Times newspaper:
- Floating: but plain sailing cannot be guaranteed By Jennifer Hughes, Senior Markets Correspondent 2nd February 2010
- The real deal: Why it still takes courage to go Dutch By Lina Saigol 2nd February 2010
In these articles we find that in 2009 the total equity raised worldwide amounted to $892.4 billion and in 2008 total equity raised worldwide amounted to $635.1 billion.
Moreover, we are told that the following are the rates that bankers charge their customers to take their company public.
| Fees | % |
| USA | 6.7% |
| Europe | 3.2% |
| Asia | 2.5% |
The FT provides us with the regional breakdown of where all of this equity was raised and by making some assumptions as to which fee rates apply to which region, I have come up with the following analysis and estimates:
Equity Raised (from the FT)
| $bn | 2009 | 2008 |
| North America | 294.7 | 265.7 |
| Europe | 274.6 | 205.4 |
| Northern Asia | 115.8 | 30.8 |
| SE Asia | 21.8 | 14.1 |
| Japan | 62.7 | 15 |
| Caribbean | 0 | 1.2 |
| Latin America | 29.1 | 25.8 |
| Africa | 4.4 | 11.5 |
| Middle East | 4.6 | 13.4 |
| Indian Subcontinent | 22.1 | 14.1 |
| Australasia | 62.7 | 38.1 |
| Total | 892.5 | 635.1 |
Estimated Fees (my estimates)
| $bn | 2009 | 2008 |
| North America | 19.74 | 17.80 |
| Europe | 8.79 | 6.57 |
| Northern Asia | 2.90 | 0.77 |
| SE Asia | 0.55 | 0.35 |
| Japan | 1.57 | 0.38 |
| Caribbean | 0.00 | 0.08 |
| Latin America | 1.95 | 1.73 |
| Africa | 0.14 | 0.37 |
| Middle East | 0.15 | 0.43 |
| Indian Subcontinent | 0.55 | 0.35 |
| Australasia | 1.57 | 0.95 |
| Total | 37.90 | 29.78 |
There you are: in 2009 I have estimated that the total fees that banks have charged for helping companies to raise their equity by $892.4 billion amounts to $37.9 billion. Of course, the fees do not represent pure profit and they are not the only basis on which bonuses are calculated. However, you now have a better idea of where the bonus calculation begins.
Duncan Williamson
