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January 28, 2009

 

DiNapoli: Wall Street Bonuses Fell 44% in 2008

Securities Industry Losses Could Exceed $35 Billion
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Cash bonuses paid by Wall Street firms to their New York City employees declined by 44 percent in 2008 in response to record losses suffered by the securities industry, according to an estimate released today by State Comptroller Thomas P. DiNapoli. DiNapoli noted that the federal Troubled Asset Relief Program (TARP), which infused billions of dollars into the financial system, helped prevent more institutions from failing. TARP placed restrictions on bonuses for top executives and many have voluntarily forgone bonuses, but it did not impose limitations for lower-level employees.

“A 44 percent decline in the bonus pool will ripple through the regional economy and the state and the city will lose major tax revenues,” DiNapoli said. “The securities industry has already lost tens of thousands of jobs and the industry is still continuing to write off toxic assets. It’s painfully obvious that 2009 will probably be another difficult year for the industry.”

“Taxpayers have invested billions of dollars to stabilize the nation’s banks and financial institutions and there are plans to make additional investments to shore up the banking system. There needs to be greater transparency and accountability in the use of these funds. Every dime counts, especially when they’re taxpayer dimes and taxpayers ought to know if these funds were used to buy corporate jets, pay dividends or bonuses.”

DiNapoli’s office estimates that the bonus pool paid by the securities industry to its employees in New York City totaled $18.4 billion in 2008 based on personal income tax collections and other factors, including industry revenue and expense trends. This represents a decline of 44 percent compared with the $32.9 billion paid in 2007. The decline is the largest on record in absolute dollars and the largest percentage decline in more than 30 years, but the size of the bonus pool is still the sixth largest on record.

DiNapoli also estimated that the traditional broker/dealer operations of the member firms of the New York Stock Exchange lost more than $35 billion in 2008—more than three times the record loss in 2007. Industry losses were actually much greater when other business services, such as mergers and acquisitions, were factored in.

For the past decade, the Comptroller’s office has released its estimate of bonuses paid to securities industry employees who work in New York City (whether they are City residents or commuters). Bonuses paid by New York City-based firms to their employees outside of the City (whether in domestic or international locations) are not included. DiNapoli’s estimate also does not include stock options that have not yet been exercised, which could increase the value of bonuses realized.

  • The average bonus declined by 36.7 percent to $112,000 in 2008. The decline in the average bonus was smaller than the decline in the bonus pool because the pool was shared among fewer workers as the industry shed jobs.
  • The reduction in Wall Street bonuses will cost nearly $1 billion in personal income tax revenues for New York State and another $275 million for New York City. Before the start of the financial crisis, business and personal income tax collections from Wall Street activities accounted for up to 20 percent of State tax revenues and 12 percent of City tax revenues.
  • Employment in the securities industry in New York City declined from 187,800 in October 2007 to 168,600 in December 2008, a loss of 19,200 jobs, or 10.2 percent.
  • At the beginning of 2008, there were seven major financial firms headquartered in New York City. Since then, two have been acquired, one failed, and two converted into commercial banks.
  • A review of the 2008 year-end statements of the major financial firms headquartered in New York City (the Merrill Lynch acquisition was completed in 2009) showed a tax credit of $31.3 billion for 2008, which will reduce the firms’ future tax payments for years to come.

Click here for a chart showing bonuses paid from 1985-2008.

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