Wall Street’s profits were strong in the first half of 2015 at $11.3 billion, the strongest first half since 2011, and may have positioned New York City’s securities industry for a good year despite recent economic developments, according to a report issued by New York State Comptroller Thomas P. DiNapoli today.
“After a very strong first half of the year, the securities industry faces volatile financial markets and an unsteady global economy,” DiNapoli said. “After years of downsizing, the industry has been adding jobs in New York City, but it may curtail hiring to bolster profits. We’re hopeful that Wall Street’s robust first half will result in a good year. The securities industry continues to be a major contributor to the city’s economy and a large contributor to the state and city budgets.”
Despite new regulations and the high cost of legal settlements related to the 2008 financial crisis, securities industry profits were strong in 2013 and 2014, averaging $16.3 billion annually. Profits were even stronger during the first half of 2015, rising 29 percent compared to the same period in the prior year as the cost of legal settlements declined. Industry performance is traditionally measured by the results of the broker/dealer operations of New York Stock Exchange member firms.
Weakness in the global economy, particularly China, and concerns over the timing of the Federal Reserve’s plan to raise short-term interest rates have shaken the financial markets since the beginning of August, which could reduce profitability in the second half of 2015. Nonetheless, the industry may still have a good year given the strong first half.
As of August 2015, the securities industry in New York City had 174,000 jobs as seasonally adjusted by the state Comptroller’s office. The industry added 2,300 jobs in 2014, the first gains since 2011, and was on pace to add another 4,500 jobs in 2015 before the recent market downturn. Despite these gains, the securities industry is still 9 percent smaller than before the financial crisis. While the recent growth in securities industry employment was a positive development for the city’s economy, the industry may resort to staffing reductions over the coming months to bolster profits.
The average salary, including bonuses, in the securities industry in New York City grew by 14 percent in 2014 to $404,800, setting a new record. After accounting for inflation, 2014 was the third highest year on record. Average salaries in the securities industry were nearly six times higher in 2014 than in the rest of the city’s private sector ($72,300). Nearly a quarter (23 percent) of the employees earned more than $250,000 in 2013, compared with less than 3 percent in the rest of the city’s work force.
Major findings of DiNapoli’s analysis include:
- The securities industry remains an important part of New York City’s economy. Although it accounts for less than 5 percent of the city’s private sector workforce, it accounts for 22 percent of all wages paid in the city;
- DiNapoli estimates that each additional job in the securities industry creates two additional jobs in other industries in the city and one additional job elsewhere in New York state, mostly in the city’s suburbs. As a result, 1 in 9 jobs in the city and 1 in 15 jobs in the state are either directly or indirectly associated with the securities industry;
- The average bonus paid to securities industry employees in the city was $172,900 in 2014, which was only exceeded by the two years that preceded the 2008 financial crisis. The average bonus increased by more than 50 percent over the past three years;
- Non-compensation expenses, which include the cost of legal settlements, declined by 12 percent in the first half of 2015. The decline comes after such costs climbed by 36 percent between 2010 and 2014;
- The city’s share of national securities employment has shrunk over the past few decades, primarily because of geographic diversification, new technologies and cost-cutting. The city’s share declined from 32 percent in 1990 to 23 percent by 2000, and fell further to 19 percent by 2013, remaining at that level in 2014;
- DiNapoli estimates that in City Fiscal Year 2015, the city received tax payments of $3.8 billion, or 7.5 percent of all city tax revenue, from securities industry-related activities, the largest amount since the financial crisis;
- New York state collected tax payments worth an estimated $12.5 billion from securities-related activities in State Fiscal Year (SFY) 2014-15, or 17.5 percent of state tax collections; and
- The state also received a total of $7.5 billion in SFY 2014-15 and SFY 2015-16 from financial firms to settle legal actions, mostly related to the 2008 financial crisis.
For a copy of the report, click here: www.osc.state.ny.us/osdc/rpt5-2016.pdf
A video on DiNapoli's 2015 Wall Street report is available here.