NEW YORK (Reuters) - Wall Street’s painful downsizing could cost 225,000 New Yorkers their jobs over the next two years as it recent era of outsize profits may have ended and it adapts to less leverage, the state comptroller said on Monday.
The securities industry could clip a total of 38,000 workers by next October, and another 10,000 employees could be axed in related fields, such as banking, insurance, and real estate, Comptroller Thomas DiNapoli forecast in a new report.
Wall Street seems to have overpaid its employees in the first six months of this year, DiNapoli said adding that total compensation ate up “an unsustainable” 97 percent of net revenues. In contrast, the ratio averaged only 53 percent from 1990 to 2006.
And unlike previous cycles in this traditionally boom-and-bust industry, Wall Street might not revisit its recent mistakes, at least for awhile, because the federal bank bailout includes some new curbs while the new Democratic Obama administration views stiffer regulations as a must.
Further, the new bank holding company model adopted by Goldman Sachs and Morgan Stanley after rival Lehman Brothers was allowed to sink into bankruptcy, comes with regulations that did not apply to these titans when they were investment banks.
“The challenge is that we know that Wall Street is going to look different than before we went into this,” DiNapoli said,
The end of the leverage generation could transform investment banking, withering mergers and acquisitions. It also might herald a era of lower but more stable profits, he said.
Wall Street likely will employ fewer people -- and reward them less generously, DiNapoli added, predicting that the past few years of “outsize” profits would not be matched again.
The securities industry lost 16,000 jobs last month on a year-over-year basis, the state Labor Department said last week. Because these workers are paid so generously, an average of almost $400,000 last year, these jobs spur hiring in many other sectors, from shops to advertising firms.
That intensifies the pain of Wall Street’s breakdown, as each of this industry’s jobs could cause two workers to be laid off in New York City and 1.3 employees to be cut in the state, the Democratic comptroller explained.
Securities company executives, moreover, should not reap bonuses because it’s “inappropriate to reward poor performance,” DiNapoli said, noting that broker/dealer desks of New York Stock Exchange member firms lost almost $21 billion in the first six months of this year.
Bonuses now could plunge in half, the way they did in the early 2000s, after the end of the Internet speculative fever and the deadly September 11 air attacks in 2001, DiNapoli said.
That might bring these payments down to $16 billion. This will also hurt Wall Street’s lower-level employees, who just like investment bankers and top traders, often rely heavily on bonuses. “New York will feel a lot of pain from a shrunken bonus pool,” DiNapoli said.
The state and city could lose $6.5 billion in tax revenues from Wall Street over two years. New York City gets 12 percent of its tax revenues from this industry, while the state gets 20 percent.
DiNapoli also warned that job “losses could be greater if the economic downturn is deeper and longer than currently forecast.”
Wall Street’s job force peaked at 200,300 in December 2000. As of last month, this sector employed 171,400 people, according to the state Labor Department.
New York City lost 232,1000 private-sector jobs in the recession that stretched from 2001 to 2003.
Reporting by Joan Gralla; Editing by Theodore d'Afflisio