Wall Street Bonus Pool Seen Shrinking for Second Straight Year

Wall Street’s cash bonus pool is likely to fall for a second straight year as the financial industry grapples with market turmoil, economic weakness and new rules, New York state Comptroller Thomas DiNapoli said.

Revenue and compensation trends have “edged downward” since February, when DiNapoli estimated that the 2011 pool for Wall Street declined by 13.5 percent to $19.7 billion, the comptroller said today in a report.

“Based on those trends, the total cash bonus pool for work performed in 2012 is likely to decline for a second year in a row,” DiNapoli said in a statement.

The last time the pool shrank for two consecutive years was in 2007 and 2008, at the beginning of the global financial crisis, according to the comptroller’s office.

Member firms of the New York Stock Exchange earned $10.5 billion in the first half of 2012, and profits may climb to $15 billion by year-end, said DiNapoli, a 58-year-old Democrat. Last year, the firms earned $12.6 billion in the first six months, then lost $4.9 billion as the European debt crisis deepened, he said. Wall Street firms cut 4,800 jobs from May through August of this year, he said.

“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.”

Employee Expectations

DiNapoli’s forecast of a shrinking bonus pool contrasts with employee expectations. Of 911 financial professionals who responded to a survey e-mailed by eFinancialCareers.com, 48 percent anticipated a higher payout, up from 41 percent in a similar survey last year, the job-search website said in a statement yesterday.

“The mood is better, some people will be happier, but we still have another quarter to go,” Constance Melrose, eFinancialCareers.com’s managing director in the Americas, said in a telephone interview. “People are less pessimistic than they were a year ago.”

Wall Street employees took home an average cash bonus of $121,150 in 2011, according to DiNapoli’s February estimate.

Since the beginning of 2012, the industry in New York City has lost 1,200 jobs, DiNapoli said. Wall Street firms cut 28,100 employees during the financial crisis and have added back only 7,900 since November 2007, he said.

Economic Concern

In 2011, the average salary reached $362,950, 0.5 percent higher than in 2010, DiNapoli said. That’s higher than before the financial crisis, he said.

The central worry for Wall Street workers is the U.S. economy, with 59 percent saying that it has the biggest potential negative influence on financial-services compensation, according to the eFinancialCareers.com survey. Ten percent said Europe’s debt crisis is the biggest concern and 12 percent chose the Dodd-Frank Act, which revamped financial regulation, according to the survey.

In fiscal 2008, Wall Street accounted for more than 20 percent of New York state’s tax revenue and 12 percent of New York City’s. By fiscal 2011, those percentages had dropped to 14 percent and 7 percent, respectively, DiNapoli said.

To contact the reporter on this story: Freeman Klopott in Albany, New York, at fklopott@bloomberg.net

To contact the editors responsible for this story: Stephen Merelman at smerelman@bloomberg.net; David Scheer at dscheer@bloomberg.net.

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