Banking & Finance

Wall Street Bonuses and Profitability Heading Lower, Maybe Far Lower

Working on Wall Street used to be the biggest dream job in the world. The movie “Wall Street,” unexpectedly to its producer, glorified the creed of “greed is good,” and following the money paid off for a generation. But something changed during and after the Great Recession. Now Wall Street is targeted for success and targeted for greed. So what happens when Wall Street is less and less profitable?

A new report from the State Comptroller’s Office of New York showed that both bonuses and profits on Wall Street declined in 2015. Wages supposedly were increasing around the nation in late 2015 and 2016. That should make it stand out that Wall Street profits and bonuses are down so much.

The comptroller report indicates that the average bonus paid in New York City’s security industry was down a sharp 9% in 2015, to $146,200. The industrywide profits were down even worse, at -10.5%.

It turns out that pretax broker/dealer operations profits for New York Stock Exchange member firms were down by nearly $1.7 billion to $14.3 billion in 2015. Things started out fine in 2015, but a small loss of $177 million in the fourth quarter seems to be pointed out — a period in which markets were recovering but unable to reach new highs. That was said to be the first quarterly loss industrywide since 2011.

24/7 Wall St. decided to look closer at the profit picture versus what the comptroller report covered. This effort looks at the total revenue picture and the operating income of the top brokerage firms at the end of this report. That includes Goldman Sachs Group Inc. (NYSE: GS) and Morgan Stanley (NYSE: MS) for the top bulge-bracket brokerage firms, and we looked at Citigroup Inc. (NYSE: C) and JPMorgan Chase & Co. (NYSE: JPM) for their massive efforts in non-banking financial services on Wall Street.

What is amazing about the profits being down so much is that expenses were also lower in 2015. This profit decline was due to weak revenues, and the major blame there was from lower trading gains and weaker underwriting efforts.

Now consider this about targeting Wall Street’s endless money. The comptroller report suggests that industry profits declined for the third consecutive year, and this was the lowest reported level since 2011.

On top of lower profits and lower bonuses, the total employment in the securities industry in New York City grew by 2.7% in 2015. This was an increase of 4,500 jobs to an average of 172,400 jobs for the year. The securities industry in New York added 2,400 jobs in 2014, so this was the first two-year run of positive jobs growth in New York City since the financial crisis. Still, the industry is now said to be some 8% smaller than before the financial crisis.

Here is the real question to consider. The year 2016 seems to have stabilized after a very rough six-week start, but the market is still technically down for the year and the underwriting efforts have been very weak. So, what happens to bonuses and pay if things stay choppy in 2016? There is also the notion to consider that this is a presidential election year.

Before just thinking about the comptroller report, it is important to realize that the market and economy are at a crossroads in the first quarter of 2016. Global economic GDP growth forecasts keep ratcheting lower. International trade remains challenging due to the dollar strength and weak demand. Banks are increasing their loan loss reserves tied to oil and gas, and many financial firms are still aiming to cut costs in an effort to boost profits when the broader economic picture is for very muted growth at a time when the Federal Reserve wants to still raise U.S. interest rates.

Goldman Sachs saw revenues and operating income fall in 2015, to $33.82 billion in revenue and $8.778 billion in operating income. That was versus $34.528 billion in revenue and operating income of $12.357 billion in 2014. The 2013 figures were $34.206 billion in revenue and $11.737 billion in operating income.

Morgan Stanley had a bump in revenues in 2015 and operating income, to $35.155 billion and $8.495 billion, respectively. That was up from $34.275 billion in revenue and operating income was $3.591 billion in 2014, In 2013, it was $32.493 billion in revenue on operating income of $4.558 billion.

JPMorgan remains in decline as far as revenue, but not so in operating income. Revenue was $89.716 billion in 2015, down from $91.973 billion in 2014 and $97.142 billion in 2013. The 2015 operating income was $30.702 billion, versus $30.699 billion in 2014 and $26.675 billion in 2013.