With Wall Street reaping another windfall in the first half of the year - reporting a 13% boost in pre-tax earnings from a year ago even as job losses accelerated in New York City’s securities industry - as the securities industry benefited from the pandemic-induced boom in markets, New York City is projecting a tax windfall courtesy of a surge across Wall Street bonuses.
The financial industry’s pretax profits surged about 13% from a year earlier to $31 billion, helped by record low interest rates, strong trading volume, record earnings in subsectors like global equities — which had the strongest six-month period since 1980 — and record revenues from underwriting and account supervision fees and investment advisory fees, state Comptroller Thomas DiNapoli said Thursday in a report. While it was the industry’s second-most profitable first half on record, DiNapoli cautioned that profits will subside as interest rates rise and monetary stimulus fades.
“Wall Street’s success during the pandemic has benefited New York’s economy and finances during a difficult time,” he said in a statement. However, cautioning that this bonanza will "subside at some point", and adding that "as we prepare for an eventual slowdown in Wall Street’s record activity, we need to ensure New York’s Main Street, and its other vital sectors, are also recovering.”
DiNapoli's optimism comes as Morgan Stanley posted record revenue and equities trading surged across the industry, while Goldman Sachs already generated enough revenue to give the firm its best year ever.
The NYC comptroller said that the average bonuses paid out to NYC securities industry workers in 2020 grew by 10% to $184,000 and made up 41% of wages. Average salaries including bonuses reached $438,450 last year, the highest of all industries in the city.
Based on the industry’s increased set asides for compensation this year, the city forecast a 6.5% rise in the average bonus for 2021, as banks have been increasing pay to attract new talent and retain existing staff, which would raise bonuses above the post-recession record paid out in 2017. DiNapoli’s office will release its estimate for 2021 bonuses in Spring 2022.
The comptroller credited the industry’s strong performance with helping to shore up tax revenues, and said a higher share of its employees had returned to their desks amid the pandemic compared with Manhattan’s overall office workforce.
Some other highlights from the report:
Wall St. accounts for just 5.2% of the city’s private sector employment, but it made up one-fifth of all wages paid in the city last year and 55% of all private sector bonus payments. It also was responsible for 14% of all economic activity in the city, more than any other industry.
The securities industry comprised 6.8% of New York state’s economy in 2020. And in city fiscal year (FY) 2021, the industry paid $4.7 billion in taxes, most of it (74%) in personal income taxes, reversing two years of declines. It was also the source of 7% of all city tax collections in city FY 2021, the highest level since FY 2015, as many of the city’s other sectors saw major declines due to the COVID-19 pandemic.
The state’s greater reliance on personal income taxes for revenue, and absence of a general real property tax, means it relies more heavily on Wall St. for tax revenue than the city. The industry accounted for 18% of all state tax collections ($14.9 billion) in state fiscal year 2021, which ended March 31, 2021.
Wall Street has led the return to the office with a higher share of employees (29%) back at their workplaces (either hybrid or full-time) compared to Manhattan office workers overall (23%), in August 2021 according to survey data from the Partnership for New York City.
High incomes create economic activity in other employment sectors. 1 in 9 jobs (or more than 11%) in the city and 1 in 16 jobs (more than 6%) in the state were associated with the securities industry in 2019. Each job gained or lost in the industry leads to the creation or loss of two jobs in other industries.
In 2020, net revenue (gross revenue less interest expenses) grew to a record $198.6 billion, an increase of 17.4% over 2019.
In 2019 (most recent data), 41% of Wall St. workers commuted from outside of the city — the highest share of commuters of any major industry. The average round-trip commute for non-city resident industry employees was just over 74 minutes, the longest of any industry.
Despite the cheerful picture, and even though initial third quarter results show continued strength, DiNapoli warned that there is risk that the industry’s profit growth will slow as interest rates rise and make borrowing more expensive and federal monetary stimulus ebbs. "It remains unclear if Wall Street’s second half will maintain a trajectory that raises year-end profits above 2020’s pre-tax revenue of $50.9 billion or reaches the record $61.4 billion the industry generated in 2009" the report noted. The city’s June financial plan forecast Wall St.’s 2021 profits returning to pre-2020 levels, which would be equivalent to a 46% drop and is unlikely given strong first half results.