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Investment bankers hit by a slump in equity and debt issuance this year are expecting bonuses up to 50% lower than in 2021 – and they are the lucky ones.

Pay cuts are expected across large swathes of the financial sector as bonus season approaches, according to a report released Thursday by compensation consultancy Johnson Associates.

Bankers involved in securities underwriting face bonus cuts of 40% to 45% or more, according to the report, while merger advisers are in line for 20% to 25% lower bonuses. Those in asset management will see cuts of 15% to 20%, while private equity workers could see drops of up to 10%, depending on the size of their businesses.

“There are going to be a lot of people losing 50%,” Alan Johnson, chief executive of the eponymous company, said in an interview. “What’s unusual about this is that it comes so soon after a great year last year. That, on top of that, you have high inflation eating away at people’s earnings.”

Wall Street is grappling with a sharp drop in capital markets activity as IPOs slowed, the pace of acquisitions plummeted and stocks suffered their worst first half since 1970. The timing epitomizes the nature of feast or famine of the industry, which has seen a two-year bull market for transactions, fueled by billions of dollars in support for businesses and markets sparked during the pandemic.

In response, the six largest U.S. banks added a combined 59,757 employees from early 2020 to mid-2022, according to company filings.

Now they could be forced to cut jobs as the outlook for investment banking remains bleak.

“We will have layoffs in parts of Wall Street,” Johnson said, adding that the layoffs could amount to 5-10% of staff. “I think a lot of companies will want their headcount to be lower by February than they were this year.”

Another veteran Wall Street consultant, Opimas’ Octavio Marenzi, said July was even worse than previous months for stock issuance, citing data from the Securities Industry and Financial Markets Association.

IPO issuance has fallen 95% to $4.9 billion so far this year, while total equity issuance has fallen 80% to $57.7 billion, according to SIFMA .

“You can expect to hear announcements about layoffs in the coming weeks,” Marenzi said. “There are no signs that things are about to improve in investment banking.”

The news hasn’t been uniformly bad, however. Companies will need to increase workers’ base pay by about 5% due to wage inflation and retention needs, Johnson said.

Additionally, some sections of Wall Street have thrived in the current environment. High volatility and choppy markets can deter companies from issuing debt, but it’s a good setup for fixed income traders.

Bond traders and sales staff will see their bonuses increase by 15-20%, while equity trading staff could see increases of 5-10%, according to the report. Hedge fund traders with a macro or quantitative strategy could see bonuses increase by 10% to 20%.

Investment banks, hedge funds and asset managers rely on consultants to help them structure bonuses and severance packages by giving them insight into what competitors are paying.

Johnson Associates uses public data from banks and asset management companies and proprietary customer information to calculate projected year-end incentives on a headcount-adjusted basis.

“My clients realize this is going to be a very tough year,” Johnson said. “The challenge is how do you communicate that and make sure the right people get paid.”