(Bloomberg News) Wall Street may give out smaller bonuses for the second straight year and shed almost 10,000 jobs by the end of 2012 as Europe’s debt crisis slows the economy, New York Comptroller Thomas DiNapoli said.
Member firms of the New York Stock Exchange earned $9.3 billion in the first quarter, about half of the $20 billion New York City projected they’d earn for all of 2011. Since then, profits have dropped sharply and are unlikely to reach $18 billion for the year, DiNapoli said in a report today.
“The securities industry had a strong start to 2011, but its prospects have cooled considerably for the second half,” DiNapoli said. “It now seems likely that profits will fall sharply, job losses will continue, and bonuses will be smaller than last year.”
The Standard & Poor’s 500 Index is down about 5.5 percent this year after gaining 12.8 percent in 2010. Stocks retreated today on concern Europe’s debt crisis may worsen.
After adding 9,900 jobs between January 2010 and April 2011, the securities industry shed 4,100 positions through August and may lose another 10,000 by the end of 2012, DiNapoli said. Each job gained or lost in the industry creates or eliminates three other jobs in New York City and state, he said.
More Wall Street finance officials expect bonuses to fall than rise over the next three years, according to an eFinancialCareers.com survey released yesterday. About 80 percent of the 1,098 people who responded to the e-mailed query in the U.S. said they don’t expect bigger bonuses over the next three years, with 46 percent expecting them to shrink.
In 2010, the average salary in the securities industry rose 16.1 percent to $361,330, 5.5 times higher than the average private-industry salary, DiNapoli said. The industry accounted for 23.5 percent of all wages paid by businesses while making up 5.3 percent of jobs.
Wall Street contributed about 7 percent of city tax revenue in fiscal 2011, almost half of the prerecession level of 13 percent, according to DiNapoli. The comptroller said one in eight jobs in the city, and one in 13 in the state, is associated with Wall Street.
Shrinking bonuses and a smaller securities industry workforce threaten New York state’s and New York City’s tax haul, DiNapoli said.
“Given the current weakness, collections are likely to fall short of city and state targets in their current fiscal years and may decline by more the following year,” DiNapoli’s statement said.
It's a simple story of lower trading revenues, lower underwriting revenues, and a costlier regulatory environment. It's simple math that could force Wall Street to do the same thing every failing city and county in America has to do: Cut people or reduce their pay, or both.
Let's assume for a minute they layoff 10,000 people making the average of $361K per year. That's $3.6 billion coming straight out of the east coast economy. Even if it's just a fraction of that number it has a negative impact because it doesn't stop there.
Everything I've read is that for each job shed by Wall Street an additional two jobs (non Wall Street) are lost in Manhattan and another job is lost outside of New York City. While they might be lower paying service jobs, 10,000 Wall Street jobs could equal 40,000 in total layoffs.
A great deal of these high income earners might not ever find a job that pays that well for years if at all.
There will be too much Wall Street talent sitting on the bench willing to work for less, keeping pay levels down.
In addition, those who get to keep their job might see a much lower bonus and an eventual pay cut as Wall Street right sizes their cost structure too match the industry trends. Shareholders will expect those kinds of decisions.
The Big Loser
It has to be the State of New York and more intensely the City of New York. If these kinds of layoffs occur, the real estate market will suffer, while retail spending compresses. The City and State of New York could see their tax revenue stream compress.
New York has too much of it's well being tied to Wall Street, much the way Detroit is tied to the Auto industry. Serious compression on Wall Street is not good for the New York economy.
Hope all is well.
J.D. Rosendahl, Rosey