New York City may face increased budget deficits because of falling Wall Street profits, an “uncertain economic recovery” and the prospect of reduced federal and state aid, state Comptroller Thomas DiNapoli said.
The securities industry lost almost $3 billion in the third quarter of 2011, cutting year-to-date profits to $9.6 billion, DiNapoli reported today. He predicted profits will come in “significantly short” of the $20 billion the city forecast for 2011 in its financial plan, saying weakness on Wall Street may lower tax collections by $100 million in the next fiscal year.
“With its prospects dimming, the industry has begun to cut costs and reduce employment and employee compensation, actions which will ripple through the New York City economy,” DiNapoli’s office said in a statement. “Cash bonuses paid to securities-industry employees in the city are likely to be substantially smaller than last year.”
Wall Street contributed about 7 percent of city tax revenue in fiscal 2011, almost half of the prerecession level of 13 percent, DiNapoli estimated in a previous report. Financial firms globally have disclosed plans to eliminate more than 200,000 jobs this year in response to market turmoil, economic weakness and fallout from Europe’s sovereign-debt crisis.
Broker-dealer profits totaled $12.6 billion in the first half of this year, down 10.8 percent from the same period a year ago, the comptroller’s report said.
“Underlying profitability at the large firms was even weaker than reported because third-quarter profits were boosted by accounting adjustments,” it stated.
The securities industry has lost about 1,800 jobs in the city since April, the comptroller said. In October, a report by the office forecast that the industry may lose almost 10,000 jobs by the end of 2012.
The city’s $70.3 billion financial plan for fiscal 2013, which begins in July, contains a budget deficit of $2 billion that may grow to $4.9 billion by 2015. Those estimates don’t reflect probable federal and state aid cuts, or the possibility that Governor Andrew Cuomo may veto a bill that would generate $1 billion for the city through the sale of new taxi medallions. The European crisis poses additional risk to the U.S. and city economies, the comptroller said.
“While the city has taken steps to narrow next year’s budget gap, the projected out-year gaps are considerably larger and will be more difficult to close,” DiNapoli said. “The risks are accelerating rather than decreasing.”
The city faces additional costs from debt service, which may rise as much as 45 percent by 2015, to $7.3 billion, the report said.
“The mayor has been saying for some time that the economic picture remains uncertain,” said Marc LaVorgna, a spokesman for Mayor Michael Bloomberg. “We have a tough road ahead and will continue to take the same proven approach.”
The mayor is the founder and majority owner of Bloomberg News parent Bloomberg LP.
Morgan Stanley (MS) said today it will cut about 1,600 jobs in the first quarter of next year. Bank of America Corp. (BAC), the second-largest U.S. lender, said in September that it plans to cut 30,000 jobs.
While lower credit losses have helped earnings at U.S. commercial banks, the traditional Wall Street businesses have suffered. Revenue from investment banking and trading at the 10 largest global firms fell 12 percent in the first nine months of this year, after a 23 percent decline in 2010, according to industry consultant Coalition Ltd.
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