In a just released report, New York State's Comptroller Thomas DiNapoli presents his expectations for what is set to be another bumper year for Wall Street. Per the report: "The first quarter of 2010 was among the most profitable on record ($10.3 billion), but in the second quarter profits eased (to $3.8 billion) and were more in line with pre-crisis levels. It appears that profits were relatively modest in the third quarter as well, but 2010 could still be the fourth most profitable year for the securities industry in New York City." Yet here is the most relevant piece: "While it appears that the cash bonus pool will be smaller than last year, the average bonus paid to employees in the securities industry in New York City may be a bit larger, since the pool will be divided among fewer workers given continued staff reductions". Money well earned. So summarizing the report - in a year when US underemployment persists at around 17%, when the US federal debt is at nosebleed levels, when well over 40 million Americans are on foodstamps, when personal bankruptcies are at the highest they have been in 5 years, when GDP is about to turn red again, when America still doesn't have a formal budget, the average banker bonus may be one the biggest ever on record. Peasants - 0; Kleptocrats - 1.
Highlights from the report:
- Wall Street earned $14.1 billion in the first half of 2010—61 percent less than in the same period last year—and revenues were down by 26.8 percent.
- Wall Street profits could total $19 billion for all of 2010—or 69 percent less than last year’s supersized record ($61.4 billion), which was fueled by federal assistance and low interest rates.
- Despite the sharp drop in profitability, 2010 could still be Wall Street’s fourth most profitable year in absolute dollars and the sixth best year (in at least 30 years) on an inflation-adjusted basis.
- One of every six jobs lost in New York City during the recession was in the securities industry. Job losses in the securities industry could reach 38,000 before employment growth resumes.
- Total wages paid to securities industry employees who work in New York City fell by 28.5 percent in 2009 (the largest decline in at least 30 years), reflecting layoffs and much smaller cash bonuses paid at the beginning of 2009 for work performed in 2008, which registered record losses.
- The average wage in the securities industry in New York City fell by a record 20.5 percent in 2009 to $311,330—still 4.9 times higher than the average in the rest of the private sector ($63,650).
- While the cash bonus pool for 2010 may be smaller than last year—as revenues, profits, and compensation have trended downward this year—the average bonus may be larger, given job losses.
- Household wealth fell from $65.8 trillion before the recession to $48.8 trillion in the first quarter of 2009, but then rebounded to $53.5 trillion in the second quarter of 2010.
- The delinquency rate for residential mortgages exceeded 11 percent in the first half of 2010, compared with 2 percent before the recession.
- Consumers are paying down debt and saving more as they repair their personal finances. The savings rate has risen to about 6 percent of disposable income in the spring of 2010—triple the rate in the summer of 2007.
And some more details on the ever interesting topic of banker comp:
Personal income in New York State fell by 3.1 percent in 2009—the first annual decline in 70 years. The decline was due in large part to a steep drop in employment and cash bonuses in the securities industry.
Wages (i.e., base salary and bonuses realized during the calendar year) make up the largest portion of personal income. Wages paid to securities industry employees who work in New York City fell by 28.5 percent in 2009 ($20.5 billion), the largest decline in at least 30 years (see Figure 21). This drop represents 64.3 percent of the total decline in wages that occurred in New York City in that year. The large decline reflects employment losses and a steep drop in cash bonuses for work performed in 2008, most of which were paid during the first few months of calendar year 2009.
The average wage in the securities industry in New York City posted a record decline in 2009, falling by 20.5 percent to $311,330. Average wages in the securities industry in other parts of New York State and in the rest of the nation ($202,000 and $141,980, respectively) were much lower than the average in New York City, because New York City is home to some of the most highly compensated positions in the industry, such as chief executives and investment bankers.
Securities industry wages rose by 18.5 percent in the first quarter of 2010, reflecting an increase in cash bonuses for work done in 2009, when the industry reported extraordinary record profits. Since about 30 percent of all industry wages are generally paid in the first quarter of the year, this strong gain will likely boost wages for all of 2010.
The disparity in pay between the securities industry and other private sector jobs has generally widened over the past three decades (see Figure 22). In 1981, the average wage in the securities industry was nearly twice as high as other private sector jobs, but by 2007 it was 6.2 times higher. Although the average wage in the securities industry in New York City contracted sharply in 2009, it was still 4.9 times higher than the average for all other private sector jobs in New York City ($63,650).
Wall Street Bonuses
The Office of the State Comptroller estimated that cash bonuses paid to securities industry employees located in New York City for work performed in 2009 grew by 17 percent to $20.3 billion (see Figure 23), following a 47 percent decline in 2008.2 Despite record profits, the growth in the 2009 cash bonus pool was restrained by federal intervention and the public’s outcry over the industry’s compensation practices.
Changes in compensation practices have slowed the growth in cash bonuses, with a greater share of bonuses deferred to the future. According to a global study conducted by Mercer earlier this year, many of the 61 financial firms surveyed have begun to replace cash bonuses with increased base salaries and deferred compensation.
Financial firms, like many other businesses, report compensation (i.e., base salaries, fringe benefits, and bonuses, including deferred remuneration) on an accrual basis of accounting. As such, cash bonuses paid in January and February of one year, for work performed during the prior calendar year, are reported in the prior year’s financial statements. Tracking the compensation trends of firms during the year provides insight into the size of the bonus pool, much of which will be paid out at the beginning of the following year. For example, most of the resources that were set aside by financial firms for cash bonuses during 2010 will be paid out in January and February of 2011.
The amount of revenue set aside by member firms of the New York Stock Exchange to fund compensation was down by only 4.4 percent in the first half of 2010, even though net revenues and profits were down sharply (by 26.8 percent and 61.1 percent, respectively). Compensation may have fallen further in the third quarter. In the aggregate, Goldman Sachs, JPMorgan Chase Investment Bank, and Morgan Stanley reported a 7.1 percent reduction in compensation through the third quarter of 2010.
The securities industry has reported declines in revenues, profits, and compensation as 2010 has progressed, and compensation was down compared to one year ago. While it appears that the cash bonus pool will be smaller than last year, the average bonus paid to employees in the securities industry in New York City may be a bit larger, since the pool will be divided among fewer workers given continued staff reductions. It is difficult to predict, however, the impact of regulatory reforms (both enacted and anticipated) on compensation practices, which could result in the deferral of a larger share of bonuses. An analysis of personal income tax withholding patterns, beginning in late December 2010, will clarify the change in the cash bonus pool.