Weak Wall St bonuses may crimp some luxury spending

NEW YORK Mon Dec 31, 2007 4:54pm EST

A street sign is seen on Wall Street outside the New York Stock Exchange in New York December 11, 2007. REUTERS/Brendan McDermid

A street sign is seen on Wall Street outside the New York Stock Exchange in New York December 11, 2007.

Credit: Reuters/Brendan McDermid

NEW YORK (Reuters) - The past few weeks may have meant Christmas shopping for some, but the next few could be all about where and how Wall Street bonuses will be spent.

This year, payouts from financial companies are being scrutinized more than ever, as several banks cut jobs and reel from losses tied to mortgages and the global credit crunch.

Overall bonuses announced so far are down from last year, headhunters have said, while individual payouts varied widely.

Payouts for some of the most successful fixed income traders this year were flat to down 5 percent, while those for other top performers were down 10 percent to 20 percent, according to recruiters, quoting early feedback from clients.

So as the idea of a lower bonus turns to reality for some Wall Street professionals, experts expect them to splurge less. While they won't be hurt by the credit squeeze in the same way middle-class America has been, what could force them to close their wallets is the fear of losing their jobs.

"Job security is more an issue right now than how to spend one's bonus," said James Grubman, a clinical psychologist who has worked with several wealth management advisory firms, including Wachovia Corp WB.N.

"If you are not sure whether you are going to have a job in the financial services industry shortly, you may be more conservative with your spending this holiday."

Jobs at the very top of Wall Street have already been lost. Merrill Lynch & Co Inc MER.N Chief Executive Stan O'Neal and Morgan Stanley (MS.N) Co-President Zoe Cruz were ousted after their companies posted huge mortgage-related losses.

Citigroup Inc's (C.N) Charles Prince quit as its CEO, and there has been talk that Citigroup could slash more jobs than the 17,000 it announced in April.

Those who escaped the cut often did so at a cost. Both Morgan Stanley CEO John Mack and Bear Stearns Co Inc BSC.N CEO Jimmy Cayne kept their jobs, but had to forgo bonuses.

While Citigroup's shares had lost more than 47 percent in 2007, Morgan Stanley, Merrill and Bear Stearns were down 21 percent, 42 percent and 46 percent, respectively.

Goldman Sachs Group Inc (GS.N) remains the sector's bright spot, with its shares up 6 percent this year.

"Much more important than (the) bonus is the investment performance of Bear Stearns, Citi ... and that is going to impact spending," said Emanuel Weintraub, managing director of money management firm Integre Advisors.

FIFTH AVENUE AND TOURISM

During a good year, Wall Street bonuses are typically spent on exotic trips, cars, jewelry and homes.

A popular New York shopping destination is Fifth Avenue, though most luxury stores there cater to wealthy consumers who don't rely on year-end payouts, said David Arnold, senior vice president at luxury magazine Robb Report.

CEO Michael Kowalski of Tiffany & Co (TIF.N), which has its flagship store on the fabled stretch of luxury shops, has said Wall Street bonuses have never been an issue for the jeweler.

Also this year, tourists have flocked to the United States to make the most of a weak dollar. For retailers in Manhattan, that has translated into a nice revenue boost.

"There is the reality of a huge influx of Europeans in the market ... for many of them the prices in the United States are 20 to 40 percent lower than comparable products in Europe," Arnold said.

In November, Tiffany reported a 25 percent rise in third-quarter sales at its flagship store, attributing more than half the increase to tourists. A few days earlier, Saks Inc SKS.N, whose sales rose 14 percent in the third quarter, said its Fifth Avenue store outperformed the company average.

This year, higher-end cars from Mercedes-Benz (DAIGn.DE) and Aston Martin and expensive accessories like watches for men and jewelry for women will be popular, Arnold said.

One area that could see less demand is the already troubled real estate market.

"Upgrading apartments or purchasing a better place to live ... I think people are more cautious on that," Grubman said.

Some could even spend their money on items that seem more a luxury investment than a one-time expenditure.

"I'd say we're thinking that we could spend 'X' dollars to rent in the Hamptons for August or spend the same amount and get a wonderful piece of art for our apartment," said Weintraub.

Still, exceptions will always remain.

For instance, Halstead Property associate broker Jill Sloane sold to bankers recently a $2.3 million three-bedroom condominium and another $700,000 apartment on Manhattan's Upper West Side.

"It depends on which broker you talk to," she said. "I happen to be really, really busy."

(Additional reporting by Joseph Giannone and Kristina Cooke; Editing by Braden Reddall)

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.