New York City Securities Industry Remains in Transition
Profits in the securities industry are projected to grow in 2012, while employment and the cash bonus pool in New York City are expected to decline, according to an analysis released today by New York State Comptroller Thomas P. DiNapoli.
“The securities industry remains in transition and volatility in profits and employment show that we have not yet reached the new normal,” DiNapoli said. “The securities industry is still grappling with the fallout from the financial crisis, new regulations and slow economic recovery. How the industry negotiates this continued uncertainty could impact profitability and the finances of New York City and New York State.”
Securities industry revenues have been declining in recent years and profits (as measured by broker/dealer profits of the member firms of the New York Stock Exchange) have been volatile. The industry posted record losses in 2007 and 2008, followed by the two most profitable years on record. The first half of 2011 saw very strong profits of $12.6 billion, but the second half resulted in $4.9 billion in losses as the European sovereign debt crisis deepened. By year’s end, profits were a disappointing $7.7 billion.
In the first half of 2012, the industry earned $10.5 billion and is on pace to earn more than $15 billion by year’s end unless adverse developments erode profitability like last year. The impending ‘fiscal cliff’ and further deterioration in domestic and global economic conditions could quickly erode profitability in the securities industry in the second half of this year.
Major findings of the analysis include:
For a copy of the analysis visit: http://www.osc.state.ny.us/osdc/rpt9-2013.pdf
- Unlike past economic recoveries, the current recovery in New York City is being driven by industries other than securities, many of which offer lower pay. While New York City has regained more private sector jobs than it lost during the economic downturn (179 percent), the securities industry has regained only 28 percent of the jobs lost during its downturn.
- Employment in the securities industry in New York City has fluctuated during 2012, but there has been a sharp decline in recent months. DiNapoli estimates that there were 168,700 jobs in the securities industry in August 2012 (seasonally adjusted), which was 4,800 fewer jobs than in May 2012. Since the beginning of 2012, the industry has lost a net of 1,200 jobs and DiNapoli believes employment will continue to contract during the rest of 2012.
- In February 2012, the Comptroller estimated that the cash bonus pool for securities industry employees who work in New York City declined by 13.5 percent to $19.7 billion. Revenue and compensation trends have edged downward since that report and based on those trends the total cash bonus pool for work performed in 2012 is likely to decline for the second year in a row.
- The average salary (including bonuses) paid to securities industry employees in New York City fell sharply in 2009, but rose by 16 percent in 2010 and by another 0.5 percent in 2011 to reach $362,950. This was a higher average than before the financial crisis and was the highest average among New York City’s major industries. The disparity between the average salary in the securities industry and the rest of New York City’s private sector narrowed slightly but it remains wide at 5.3 times greater than the rest of the private sector ($67,900).
- As of October 1, 2012, the law firm Davis Polk reported that only one-third (127) of the regulatory changes of the Dodd-Frank Wall Street Reform and Consumer Protection Act had been completed. The Volcker Rule, which modifies laws pertaining to proprietary trading and ownership of hedge funds and private equity funds, is now expected to be completed by the end of 2012.
- Total wages, which is a function of the number of jobs and the average salary of those jobs, reveals the economic impact of the securities industry. In 2011, the securities industry accounted for 23.2 percent of all private sector wages paid in New York City, even though it accounted for only 5.3 percent of city’s private sector jobs.
- In the previous fiscal year, securities-related activities accounted for about 14 percent of New York State’s tax revenues and about 7 percent of New York City’s, down from highs of 20 percent (SFY 2007-08) and 12 percent (CFY 2008). New York State depends on Wall Street more than New York City does because the state relies more heavily on personal and business taxes.
- The Comptroller estimates that for each new job created or lost in the securities industry, two additional jobs are created (or lost) in other industries in New York City and one additional (or fewer) job in the rest of the state, primarily in the suburbs.
- DiNapoli estimates that the securities industry in New York City lost 28,100 jobs during the financial crisis and has added 7,900 jobs during the recovery, for a net loss of 20,200 jobs since November 2007.
- Despite the job losses, New York State has more securities industry jobs than any other state in the nation (nearly two and one half times the number of individuals employed than that of second-ranked California), and nearly 90 percent are located in New York City.