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Investment banks will do whatever it takes to keep their top performers happy in 2016’s bonus season — even though pay in some parts of their industry will drop as much as a third.

Senior bankers and consultants say even Europe’s flagship investment banks — which are in the throes of big restructuring programmes — will pay out for their best people despite slimmer profits in some businesses.

“There’s a bid out there for the top talent,” said a senior executive at the European arm of a large US bank. “The Europeans have a lot of headhunters working for them. The world has changed quite a bit, even if bonuses are down . . . the best jockeys will be protected.”

Investment banks will not begin paying bonuses until January, but speculation on payouts has started early this year thanks to the strategic overhauls at several European banks and weak third-quarter results from some of Wall Street’s biggest names.

Reports have said Credit Suisse could cut bonuses by as much as 60 per cent. Deutsche Bank is reportedly looking at cuts of 30 per cent — while the bank has not confirmed that figure, its co-chief executive John Cryan made waves this week by saying he could not understand what purpose bank bonuses serve.

Alan Johnson, of New York-based consultancy Johnson Associates, said traders and salespeople in fixed income, currencies and commodities groups on Wall Street could see total pay drop between 15 and 20 per cent this year.

In Asia, bankers expect a small increase in their bonus pools, but again there is likely to be far more discrepancy in pay between top and bottom performers.

While the average may rise five per cent, “good people will be up 10 to 20 per cent”, with equity businesses doing better than fixed income, says Hong Kong-based Justin McLennan, who specialises in equity market hires for headhunter Pelham. “From a team of ten there may be one or two people in that bracket.”

Senior bankers around the world say bonus cuts will be concentrated on underperforming sectors such as fixed income, and weaker individuals, while banks across the spectrum pay whatever it takes to keep their top people in their seats.

That means that while European investment banking revenues are down 20-25 per cent in US dollar terms, bonuses may not fall as sharply. The senior US bank executive believes European banks will use the same logic as his firm, despite their public posturing.

“When John Cryan says ‘I’m going to cut bonuses’ . . . is he going to hit the corporate and investment bank? I doubt it,” the banker said. He expects Mr Cryan, and his peers, will “crush” bonuses in areas in which the banks are becoming less focused but will “protect their people more than ever” in strategically important areas.

Deutsche Bank declined to comment on its bonus outlook, as did Credit Suisse, HSBC, Barclays, Morgan Stanley, Citigroup, JPMorgan Chase, Goldman Sachs and Bank of America.

The banks’ earnings reports offer hints of what lies ahead. Goldman Sachs set aside 1 per cent less for compensation and other benefits during the first nine months of the year. According to the bank’s regulatory filings, bonuses make up a “substantial portion” of the nine-month tally, which came in at $10.62bn. Morgan Stanley’s accrued compensation and benefits came to $12.37bn after nine months, down almost 3 per cent from the previous year.

In most cases, remuneration committees will not meet until January and some insiders say performance from the fourth quarter, which has so far been encouraging, could move the dial.

Some banks are also feeling less pressure than in past years to pay up simply to keep people in their seats.

“People want to keep their good people but there is no pressure that [they] will be poached,” says the head of an Asian equity business. “Generally banks feel that they don’t need to [pay up] this year.”

Market revenues in Asia have been “horrendous” in the second half, he says, so this could further reduce competition for staff as some banks may pull out of the region or shift away from people toward lower-cost electronic trading.

A London-based executive at a large European bank says he expects a slight reduction in overall bonuses. “It’s been a tough year for the street and for ourselves. It’s hard to see it being a banner year.”

He believed “differentiation” would be a key feature in 2016’s bonus season. Bankers who have done well in areas that are important to their banks will be rewarded and nurtured, he says, while bankers who have not, will not.

Tidjane Thiam, Credit Suisse’s new chief executive, expressed similar sentiments when asked on Bloomberg TV about the 60 per cent bonus cuts reported by Swiss media. “Fundamentally the way we set bonuses is to pay for performance,” he said.

Performance across the biggest banks and divisions has varied greatly. Over the first nine months of 2015, investment banking revenues dropped at Morgan Stanley (-2.9 per cent), Bank of America (-5 per cent), Citi (-6 per cent), UBS (-7.4 per cent) and Credit Suisse (-18 per cent). At eight other banks, however, revenues rose during that period, ranging from a 6 per cent increase at BNP Paribas to a 41 per cent improvement at Nomura.

In sales and trading businesses, four of the top 14 banks — Bank of America, Citi, Credit Suisse and JPMorgan Chase — reported year-on-year falls in revenues over the first nine months. Gains for the rest ranged from 2 per cent at Barclays and Goldman Sachs to 23 per cent at UBS.

Mr Johnson says pay reductions in poorly performing areas are justified. “It’s been a disappointing year, but I don’t think we should have a pity party for these people [in fixed income, commodities and currencies],” he said.

“The results haven’t been good and you shouldn’t pay bonuses that are not aligned with performance.”

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