Eugene Grygo, Chief Content Editor, FTF News
Perhaps the mixed news from the New York State Comptroller’s office will make Bernie Sanders happy as the candidate for the Democratic Party presidential nomination has been rallying his troops behind an anti-Wall Street message.
In particular, Uncle Bernie been decrying the “yuge” bonuses that CEOs at Wall Street firms are accruing.
But it looks like those Wall Street profits and bonuses are shrinking ever so slightly. In fact, the comptroller’s office report that profits “declined for the third consecutive year, reaching the lowest reported level since 2011.”
Lower profits mean lower bonuses and Thomas P. DiNapoli’s office has discovered that the average bonus for those in the securities trading industry “declined by 9 percent to $146,200 in 2015 as industry-wide profits declined by 10.5 percent,” according to an estimate from the comptroller’s office.
“Wall Street bonuses and profits fell in 2015, reflecting a challenging year in the financial markets,” says DiNapoli in a prepared statement. “While the cost of legal settlements appears to be easing, ongoing weaknesses in the global economy and market volatility may dampen profits in 2016. Both the state and city budgets depend heavily on the securities industry and lower profits could mean fewer industry jobs and less tax revenue.”
Sanders and his rhetoric aside, most people wouldn’t mind a bonus of $146,000 — shrunken or not. In fact, the average salary plus a bonus for securities industry employees in New York City “rose 14 percent in 2014 to $404,800, setting a new record (data are not yet available for 2015),” according to the comptroller’s office. “This was nearly six times higher than salaries in the rest of the City’s private sector ($72,300).”
While the salary and bonus information is interesting, it’s the drop in profits that is puzzling.
“The securities industry reported that pre-tax profits for the broker/dealer operations of New York Stock Exchange (NYSE) member firms — the traditional measure of industry profitability — declined by nearly $1.7 billion to $14.3 billion in 2015,” according to the comptroller’s report. “After a strong first half and a solid third quarter, the industry reported a small loss of $177 million in the fourth quarter, the first quarterly loss since 2011.”
Some of the other highlights from the DiNapoli report attempt to explain the losses and shrinkages:
- Weak Revenues: Even though expenses dropped last year, “profits declined because revenues were weak, particularly from trading and underwriting. Profits declined for the third consecutive year, reaching the lowest reported level since 2011;”
- Smaller Bonus Pool: DiNapoli is also reporting that the 2015 bonus pool for securities industry employees “who work in New York City declined by 6 percent to $25 billion during the traditional December-March bonus season,” officials say. “The comptroller’s estimate includes cash bonuses for the current year and bonuses deferred from prior years that have been cashed in;”
- More People in the Bonus Pool: The decline in the average bonus for 2015 was “larger than the decline in the total bonus pool because the pool was shared among a larger number of employees than last year,” the comptroller reports. “Despite the decline, the average bonus in 2015 was slightly larger than the average of the seven prior years (adjusted for inflation);”
- Employment Inches Up: Oddly as industry-wide profits tanked, employment in the securities industry in New York City “grew by 2.7 percent in 2015, averaging 172,400 jobs for the year,” according to the comptroller’s report. “The industry added 4,500 jobs, compared with 2,400 jobs added in 2014. This marks the first time since the financial crisis that the industry in New York City has added jobs for two years in a row.” All is not rosy, though, as the industry is still eight percent smaller “than before the financial crisis.” It’s also uncertain that “the recent job gains can be sustained in 2016 given the weakness in the global economy and financial markets, and increased provisions for bad loans related to the energy sector,” the report warns. “A number of large financial firms have already announced plans to reduce costs to improve profitability, which could lead to fewer employees in New York City and smaller bonuses next year.”
- And Settlements Costs Are Easing: “The securities industry does not separately disaggregate legal settlement costs from other noncompensation expenses, but noncompensation expenses (excluding rent, communication costs and other major operational expenses) declined by 6 percent in 2015, the first decline in five years,” according to the comptroller’s office. “This suggests the cost of legal settlements is beginning to ease. The decline comes after costs climbed by 83 percent between 2008 and 2014.”
Despite the shrinkages, Wall Street firms still represent “one of New York City’s most powerful economic engines,” according to the comptroller’s office. “The industry accounted for 22 percent of all private sector wages paid in New York City in 2014 even though it accounted for less than 5 percent of the City’s private sector jobs. An estimated 1 in 9 jobs in the city are either directly or indirectly associated with the securities industry.”
The DiNapoli annual estimate covers bonuses paid to securities industry employees working in New York City during the traditional bonus season, officials say. “Bonuses paid by firms to their employees located outside of New York City (whether in domestic or international locations) are not included.”
The estimates are based on personal income tax trends, “which do not distinguish between cash bonuses for the current year and compensation deferred from prior years,” according to the comptroller’s office. “The estimate does not include stock options or other forms of deferred compensation for which taxes have not been withheld,” officials add.
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