Wall Street cash bonuses rose in 2012 but were still below pre-crisis levels, and the industry is gearing up for more layoffs as it continues to adapt to more regulation and heightened competition, New York's top financial official said.
The securities industry's bonus pool was expected to total US$20 billion (NZ$24b), New York Comptroller Thomas DiNapoli said, up 8 per cent from 2011 but below levels seen in 2006 and 2007, before the financial crisis.
The estimate is not an exact view of 2012 bonuses because it is based on income tax withholdings and includes bonuses that were deferred from earlier years. The comptroller's office compiles estimates on Wall Street bonuses because of their importance to state and city tax revenues.
The rise in bonuses comes as profits for broker-dealer operations on New York Stock Exchange member firms tripled to US$23.9b in 2012 compared to US$7.7b in 2011. It was one of the most profitable years on record, the report said.
"As we all know and acknowledge the securities industry in New York City is a major driver of the city and state economy," said DiNapoli. "It's no secret that if Wall Street is strong all New Yorkers benefit."
In 2012, about 14 per cent of New York State tax revenue came from Wall Street, down from 20 per cent before the financial crisis, while the industry's contribution to New York City's tax fell from a peak of more than 12 per cent to less than 7 per cent.
The average cash bonus rose 9 per cent to almost US$121,900 in 2012, the comptroller said. Although pay in the sector is well down compared to 2006 when the average bonus was over US$190,000, it is still way ahead of what most New Yorkers make.
DiNapoli said that the average salary in the securities industry is 5.3 times more than the average salary in the rest of the private sector.
"They're good jobs if you have them and certainly very significant salaries," he said.
The securities industry on Wall Street and elsewhere is still going through a period of major change after the 2007-2008 financial crisis, with increased oversight from regulators. The industry has far fewer employees and is changing it compensation practices to include more deferred bonuses.
Morgan Stanley is taking three years to pay out 2012 bonuses to high-earning employees, three sources familiar with the situation told Reuters in January, a step that will better align incentives with shareholder interests and make it harder for employees to leave.
DiNapoli said he expects Wall Street to continue to cut jobs in 2013. Employment totalled 169,700 in December 2012, 1,000 fewer than the year before, according to the report. The securities industry in New York has regained only about 30 per cent of the 28,300 jobs it lost during the crisis.
"I think we're still in a recovery mode," said Joe Sorrentino, a managing director at Steven Hall & Partners, a compensation consultant to Wall Street firms. "In essence, all they are saying is that things are better than in 2011. That doesn't sound too confident to me."
Still, the report was another sign the industry is stabilising after the ravages of the crisis.
Federal Deposit Insurance Corporation said earlier that the banking industry's full-year earnings were the second-highest on record at US$141.3b, an increase over 2011 of US$22.9b, or 19.3 per cent. Bank earnings peaked in 2006 at US$145.2b.
Much of the earnings growth in 2012 came from banks reducing the amount they set aside for losses on loans, the FDIC said. Banks also saw gains on loan sales and higher servicing income.
"The industry is still adjusting to the current economic and regulatory environment, working through the fall out of the financial crisis," said DiNapoli. "The industry continues to announce layoffs and will likely continue to restructure."
The comptroller's estimate does not include stock options or other forms of deferred compensation.