Wall Street Bonus Picture: Rich Instead of Very Rich
Hold that Porsche? The Wall Street bonus picture is bleaker, by Street standards at least. While the summer may have started with the long-term bonus outlook for Wall Street seemingly strong, it's ending with bankers and traders expecting lower bonuses, or even layoffs.It's still early to be getting a firm read, but given the subprime crisis, credit crunch and market unrest, the early talk is of lower payouts for the first time in five years, especially in fields related to fixed income, hedge funds and alternative investments. (Many people in Wall Street jobs get most of their compensation through their bonus, not the base pay.)
Six Digits, but ...
A report by New York consulting firm Options Group said Wall Street bonuses are expected to drop about 5% for 2007. The average Wall Street bonus in 2006 was $137,580, according to the New York state comptroller's office, up 15.2% from $119,390 in 2005.
That isn't just a downer for Wall Street professionals but might also be a drag on New York's hot real-estate market. The New York housing market is propped up by young Wall Street employees doling out millions of dollars for condos and luxury homes, thanks to their hefty bonuses.
"Lower fixed-income profit results will drag overall bonuses lower since they've generated at the global banks such a significant percentage of overall revenue in recent quarters," said the Options Group report.
Combined net income -- the key figure for determining bonuses -- of Goldman Sachs Group Inc., Bear Stearns Cos., Lehman Brothers Holdings Inc., Merrill Lynch & Co. and Morgan Stanley was more than $30 billion at the end of fiscal 2006, which ended at different brokerage firms in November or December of that year. At the end of their fiscal first half of 2007, the firms' combined net income was more than $18 billion.
Options Group also said one out of three people in mortgage-related industries could lose their jobs if business doesn't pick up by year end.
Passing on the House?
This time last year, executives were pricing luxury houses and cars in anticipation of bumper payouts.
"People were shopping their bonus money early, but now when we talk to the brokers, they're saying it's not the same level of interest from strictly a bonus standpoint," said Greg Heym, chief economist with New York luxury real-estate firm Brown Harris Stevens.
One of the most brutal bonus years came after the 1998 crisis of the Long-Term Capital Management hedge fund. Bonuses were slashed by more than 20%. Hank Higdon, a managing partner at executive-search firm Higdon Partners, said this year the problem isn't as contained mainly to the U.S. and risk is spread around the world.
Others say the real impact might be felt next year.
"While the end of [2007] may have negative news such as hiring being cut, bonuses are still going to be pretty good because bonuses are always looking backwards," said Alan Johnson, a compensation consultant at Johnson Associates Inc., a New York executive-search firm. "Virtually everyone believes 2008 is going to be a much tougher year."
Six Digits, but ...
A report by New York consulting firm Options Group said Wall Street bonuses are expected to drop about 5% for 2007. The average Wall Street bonus in 2006 was $137,580, according to the New York state comptroller's office, up 15.2% from $119,390 in 2005.
That isn't just a downer for Wall Street professionals but might also be a drag on New York's hot real-estate market. The New York housing market is propped up by young Wall Street employees doling out millions of dollars for condos and luxury homes, thanks to their hefty bonuses.
"Lower fixed-income profit results will drag overall bonuses lower since they've generated at the global banks such a significant percentage of overall revenue in recent quarters," said the Options Group report.
Combined net income -- the key figure for determining bonuses -- of Goldman Sachs Group Inc., Bear Stearns Cos., Lehman Brothers Holdings Inc., Merrill Lynch & Co. and Morgan Stanley was more than $30 billion at the end of fiscal 2006, which ended at different brokerage firms in November or December of that year. At the end of their fiscal first half of 2007, the firms' combined net income was more than $18 billion.
Options Group also said one out of three people in mortgage-related industries could lose their jobs if business doesn't pick up by year end.
Passing on the House?
This time last year, executives were pricing luxury houses and cars in anticipation of bumper payouts.
"People were shopping their bonus money early, but now when we talk to the brokers, they're saying it's not the same level of interest from strictly a bonus standpoint," said Greg Heym, chief economist with New York luxury real-estate firm Brown Harris Stevens.
One of the most brutal bonus years came after the 1998 crisis of the Long-Term Capital Management hedge fund. Bonuses were slashed by more than 20%. Hank Higdon, a managing partner at executive-search firm Higdon Partners, said this year the problem isn't as contained mainly to the U.S. and risk is spread around the world.
Others say the real impact might be felt next year.
"While the end of [2007] may have negative news such as hiring being cut, bonuses are still going to be pretty good because bonuses are always looking backwards," said Alan Johnson, a compensation consultant at Johnson Associates Inc., a New York executive-search firm. "Virtually everyone believes 2008 is going to be a much tougher year."
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