Following weeks of protest, Wall Street cash bonuses and jobs are expected to be cut as revenue drops from a sluggish economy.
Last year, cash bonuses were down 8% from 2009, with the average Wall Street cash award slidding 9% in 2010 to $128,500. New York Comptroller Thomas DiNapoli explained to Bloomberg Television that bonuses will be lower yet again because banks will have less money for award payments. His report suggests a slowdown in compensation growth during the second half of 2011 and a shift to larger salaries to compensate for smaller cash bonuses.
$20 Billion Target Unlikely
New York City's financial industry profits were expected to reach $20 billion for the year, but DiNapoli thinks it is unlikely profit will reach $18 billion. As a result of lower profit, roughly 10,000 jobs in the Big Apple could be cut by the end of next year according to DiNapoli.
In August, 12% of the security jobs in New York were outside of the city as firms began moving to suburbs to avail of cheaper rent. Kathryn Wylde, President of nonprofit membership organization Partnership for New York City, said to the Wall Street Journa: “The banks I talk to are talking about significantly reduced compensation, which comes right out of our tax rolls, and layoffs and downsizing.”
Where are jobs being cut? Bank of America has already announced plans to eliminate 30,000 jobs, with Goldman Sachs saying it may cut roughly 1,000 staff and Morgan Stanley expecting 800. Analysts expect JP Morgan Chase, Citigroup and Wells Fargo to also join the layoff bandwagon.
Since January 2008, New York firms have shed 22,000 jobs. According to DiNapoli's report, for every job created or lost, three jobs are created or lost in New York City. He explained to Bloomberg that job loss has a ripple effect on other areas of the economy.
In New York City, employment fell 2.6% and employment in finance and insurance dropped nearly 9% from December 2006 to August 2011, according to the Bureau of Labor Statistics. During that same time period, those employed in finance and insurance nationwide fell 8.1%.
As third-quarter earnings are being released, banks and investors are awaiting the outlooks of their companies. Morgan Stanley and Goldman Sachs are expected to endure the hardest financial hits because the majority of their revenue comes from investment banking and trading. Only one-third of Bank of America, Citigroup, JP Morgan, and Wells Fargo's revenues stem from these two divisions.
So far this year, the stocks of Bank of America, Citigroup, Goldman Sachs, and Morgan Stanley have fallen 52%, 44%, 42%, and 43%, respectively. With all these cost cuts and revenue pains, investors are worried that a foreseeable resolution may take years.
Wall Street Fears “No Exit”
According to a collection of interviews with over two dozen executives and investors, the financial decline may not end for years. Those interviewed blamed government intervention for heightening the slump.
The benefits of the $1.2 trillion Federal Reserve emergency funds and $700 billion government bailout are dwindling, and CIT Group Inc. CEO John Thain commented that “the future is not going to be like a past we knew.”
Key Statistics – US Securities Industry (source: Associated Press)
- The securities industry lost over 4,000 jobs through August after adding nearly 10,000 jobs between January and April 2010.
- In the first quarter of 2011, stock exchange firms reported $9.3 billion in earnings. As a result of a dramatic drop in earnings in Q2, earnings are likely to reach $18 billion for the year, a third lower than in 2010.
- Last year in New York City, securities investment contributed 14% to state tax revenue and 7% of the city's tax revenue.