Reply #24: (NY) City and State Brace for Drop in Wall Street Pay By PATRICK McGEEHAN [View All]

[Demeter]

http://www.nytimes.com/2008/07/26/nyregion/26pay.html?_r=1&adxnnl=1&oref=login&ref=business&adxnnlx=1217041818-YTCxvoxPbCMya6zHF73JIQ



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July 26, 2008

Government officials in New York are preparing for what could be the biggest single-year decline in pay on Wall Street in history and with it a vexing shortfall in city and state revenues...A review of the latest statements from the largest financial companies based in the city shows that they intend to hand out about $18 billion less in pay and benefits in 2008 than in 2007. The cutting of payrolls is well under way, but the full effect will not be felt until the year’s end, when bonuses for employees based in New York could shrink by $10 billion or more, according to city officials and compensation experts.

A decline in bonuses of that magnitude would easily eclipse the drop of 2001, the year of the 9/11 terrorist attacks, when total bonuses declined by $6.5 billion, according to the state comptroller’s estimates. City and state officials said the coming plunge in pay would have wrenching effects on the local and regional economies...It would mean about $10 billion less in taxable income and several billion dollars less to be spent on apartments, furniture, cars, clothing and services. For many investment bankers and traders, year-end bonuses traditionally account for at least three-fourths of their income. But the downshifting of the Wall Street lifestyle has already begun.

“As long as I’ve been in the business, I think this is the worst,” said Vincent Nastri, whose Barclay-Rex tobacco shop down the street from the New York Stock Exchange sells cigars for as much as $35 apiece. “It’s been a little on the quiet side — a little shaky.”

All told, Wall Street firms, which employ about 178,000 people in the city, have announced thousands of layoffs in the last year. One of the seven largest financial companies in the city, Bear Stearns, nearly failed in March before it was acquired by JPMorgan Chase & Company. It is already clear that employees whose jobs survive the deep cutbacks will, as a group, take home much less money than they did last year or the year before. The latest financial statements from the remaining six of the seven largest firms show that their compensation costs declined by a total of $9.5 billion in the first half of this year, compared with the first half of 2007. Along with JPMorgan Chase, they are Citigroup Incorporated, Goldman Sachs, Morgan Stanley, Merrill Lynch and Lehman Brothers. Analysts familiar with those companies said the cuts so far implied an aggregate decline in pay and benefits, including bonuses, of more than $18 billion for the full year. About half of that amount would have gone to people employed in New York City, they said.

The impact on the state and city budgets is likely to be severe because the financial-services industry provides almost one-fourth of all income earned in the city. That pay accounts for about 10 percent of the city’s tax revenue and about 20 percent of the state’s, said Kenneth B. Bleiwas, deputy state comptroller for New York City.

“One of the things that highly compensated people do is they spend money,” Mr. Bleiwas said. “So when Wall Street suffers, the pain ripples through the rest of the economy.”

The impending decrease in the personal income of so many New York-area residents, Mr. Bleiwas said, “is a significant reduction which will affect not only state and city coffers but also have a direct impact on other sectors.” He said the jobs on Wall Street pay so well that on average, each one spawns two jobs in other fields in the city and a third in the surrounding region.

The state’s budget department estimated that the projected decline in bonuses would reduce state tax revenue by about $700 million this fiscal year, which ends March 31, said Jeffrey Gordon, a spokesman for the department....