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Business

Shutdown reduces Wall Street profits but not salaries

By
Mark DeCambre
Published Oct. 23, 2013, 12:29 a.m. ET

Washington is seriously cramping Wall Street’s Gucci-loafer swagger.

After a strong start to the year, a raft of regulatory fines, coupled with higher interest rates and political uncertainty, is expected to weigh down bank profits and bonuses in the second half of 2013, according to a report by New York State Comptroller Thomas DiNapoli.

“Without casting judgment on regulators, the level of fines and litigation is eating into profits,” DiNapoli told The Post. “That obviously is having very direct impact on banks’ bottom line.”

Indeed, a barrage of legal and regulatory payouts led JPMorgan Chase to suffer its first quarterly loss since CEO Jamie Dimon took the helm in 2005. The nation’s biggest bank also said last week it had set aside $23 billion to cover mounting legal costs.

That was before JPMorgan agreed to a record $13 billion settlement to resolve multiple probes and lawsuits into its sale of mortgage-backed securities in the run-up to the financial crisis in 2008.

Wall Street racked up $10.1 billion in profits in the first half of the year, roughly on pace with 2012. But DiNapoli predicts profits will plunge by 50 percent, to just $5 billion in the second half of this year.

All told, the $15 billion in estimated profits will be markedly lower than the $24 billion the industry generated in 2012, the third best year on record.

Last year, Wall Street workers saw a 10 percent bump in their bonuses, but DiNapoli doubts that will be the case this year.

“It’s too early to tell, but with profits down, I wouldn’t expect bonuses to be high,” he said.

The average salary, including bonus, was $360,700, last year.

New York State Comptroller Thomas DiNapoliAP

Complete data on Wall Street’s cash bonuses is expected sometime in February.

After showing signs of a recovery, the jobs picture for the financial industry is also looking ugly, with employment down 13.5 percent from 2009, the year just after the credit crisis hit.

Complete data on Wall Street employment couldn’t be calculated due to this month’s government shutdown, DiNapoli said in his report.

Historically, Wall Street tax revenues from bonuses have helped drive New York’s economy.

The securities industry accounts for just 5 percent of private sector jobs in the state but nearly 22 percent of wages, according to DiNapoli’s report.

Although DiNapoli said he is for strong regulation, he noted that officials face a big challenge in doling out Street justice.

“The question for regulators is, are we striking the right balance?” DiNapoli told The Post.

“You want to have the appropriate oversight that protects customers and investors … but you still want the Street to make money,” he said.

On a positive note, changes to Wall Street pay, including deferred bonuses and higher base salaries, have removed some of the volatility from bank profits, which peaked in 2006.