[Vision2020] One Part of the System that is Broken

[Art Deco]

February 29, 2012, 8:48 amBonuses Dip on Wall St., but Far Less Than
EarningsBy KEVIN ROOSE <http://dealbook.nytimes.com/author/kevin-roose/>
Brendan McDermid/ReutersThomas P. DiNapoli, the comptroller of the State of
New York.

*9:07 p.m. | Updated *

It is apparently going to take more than shrinking bank profits to put a
big dent in Wall Street bonuses.

*The total payout to security industry workers in New York is forecast to
drop only 14 percent during this bonus season, according to a report issued
on Wednesday <http://www.osc.state.ny.us/press/releases/feb12/022912.htm>by
the state comptroller, Thomas
P. DiNapoli<http://topics.nytimes.com/top/reference/timestopics/people/d/thomas_p_dinapoli/index.html?inline=nyt-per>.
By comparison, profits last year plunged 51 percent.*

“The securities industry, which is a critical component of the economies of
New York City and New York State, faces continued challenges as it works
through the fallout from the financial crisis and adjusts to regulatory
reforms,” Mr. DiNapoli said in a statement.

Hurt by the European debt crisis, a sluggish economic environment at home
and the introduction of new regulations that have threatened
once-profitable business lines, the nation’s largest banks had a weak
2011. Goldman
Sachs<http://dealbook.on.nytimes.com/public/overview?symbol=GS&inline=nyt-org>reported
that profit dropped 67 percent from 2010. Morgan
Stanley<http://dealbook.on.nytimes.com/public/overview?symbol=MS&inline=nyt-org>’s
earnings fell more than 40 percent.

In all, securities firms in New York made an estimated $13.5 billion in
2011, down sharply from $27.6 billion in 2010, according to the
comptroller’s estimates. It is the second consecutive year that Wall
Street’s profit fell by more than half.

“The financial industry is in the midst of structural change,” said Ronnie
Lowenstein, the director of the New York City Independent Budget
Office<http://topics.nytimes.com/top/reference/timestopics/organizations/i/independent_budget_office/index.html?inline=nyt-org>.
“It’s not just the boom and bust cycle we’ve seen in the past.”

Despite the difficult environment, New York firms paid roughly $20 billion
in year-end cash compensation to their employees. The average bonus was
$121,150, down just 13 percent from the year before as the head count
shrank. In 2006, the year before the financial crisis, the average
investment bank employee took home a bonus of $191,360.

But the comptroller’s estimates do not include noncash compensation given
for last year and so may not give the full picture given that many banks
dole out a larger portion of their annual payouts in stock.

Still, a dip in year-end cash compensation is cause for concern for New
York government officials. Before the financial crisis, Wall Street
accounted for 20 percent of the state’s tax revenue. Last year, that tally
was 14 percent. For New York City, the share dropped to 7 percent of tax
revenue from 13 percent over the same period.

“The city budget is dependent on a very small group of people — the 1
percent, if you will,” said Nicole Gelinas, a senior fellow at the
Manhattan Institute. “If the 1 percent isn’t doing well, the city’s not
doing well.”

Not only is it local and state governments that are feeling the pinch of
lower Wall Street pay. High-end restaurants, luxury goods stores and the
real estate market in New York stand to suffer as well. Mr. DiNapoli
estimates that every job lost in the securities industry in New York costs
two city jobs in other industries.

For the Wall Street firms themselves, compensation has presented a
quandary. It is their biggest cost and banks have been cutting thousands of
jobs amid the worst year for banks since the financial crisis. Yet at the
same time, keeping pay relatively stable is critical to retaining and
rewarding employees.

Jamie Dimon<http://topics.nytimes.com/top/reference/timestopics/people/d/james_dimon/index.html?inline=nyt-per>,
the chief executive of JPMorgan
Chase<http://dealbook.on.nytimes.com/public/overview?symbol=JPM&inline=nyt-org>,
said at an investor conference on Tuesday that even in tough times, he
would not pay his employees less than the going rate.

“We are going to pay competitively,” Mr. Dimon told a roomful of analysts
and investors at the conference. “We need top talent. You cannot run these
businesses with second-rate talent.”

Wall Street continues to be a lightning rod for politicians and critics who
contend that the industry’s pay packages are too high. In 2010, the average
pay, including bonuses, in the securities industry in New York City hit
$361,180. (Figures are not yet available for 2011.) At that level, Wall
Street paychecks are 5.5 times higher than those in the rest of the private
sector.

Banks are wrestling with ways to trim the tab, including paying more stock
and less cash. At Morgan Stanley, for instance, cash bonuses were capped at
$125,000 — a small fortune to many Americans, but a pittance for investment
bankers and traders used to seven-figure payouts.

Some top executives at the bank, including James P. Gorman, the chief
executive, deferred the entire cash portion of their bonuses.

“It’s a pickle,” said Alan Johnson, a compensation consultant who advises
big banks on their pay plans. “Paying employees and giving attention to the
external constituents, be they politicians or regulators, is a very
delicate balance.”

As Wall Street struggles to adapt to leaner times, government officials are
asking themselves what it means if the industry never returns to its
heights before the crisis.

“Local and state politicians see this as a cycle we’ve seen a million
times,” Ms. Gelinas of the Manhattan Institute said.

“They’re kind of conditioned to kick the can down the road, because down
the road, Wall Street comes and rescues them. The problem is, they’re not
looking at the structural change,” she said.

In an interview on Wednesday, Mr. DiNapoli said that while he believed that
“the ups and downs and the cycles are always there” on Wall Street, he and
other state officials had been forced to prepare for the possibility that
securities firms might never be able to hoist up the local and regional tax
base.

“This could be the new normal,” he said.
-- 
Art Deco (Wayne A. Fox)
art.deco.studios at gmail.com
-------------- next part --------------
An HTML attachment was scrubbed...
URL: <http://mailman.fsr.com/pipermail/vision2020/attachments/20120301/611cf4a8/attachment-0001.html>