Wall Street salaries at highest level since financial crisis

Wall Street Bull

Securities industry pretax profits totaled $13.7 billion in the first half of 2018, 11 percent higher than last year, according to a report released this week by New York State Comptroller Thomas P. DiNapoli.

"Wall Street has profited every year since the end of the recession in 2009, and compensation last year reached its highest point since the financial crisis. The momentum from last year's dramatic rise in profits has carried into 2018 and the industry is on track for another good year absent a setback later in the year," DiNapoli said. "The securities industry is a major source of revenue for New York City and New York State, and is an important part of the city's economy. Ten years after Lehman Brothers' collapse it is clear that Wall St. does not need to return to the days of excessive risk-taking to enjoy rising profits."

Industry performance is traditionally measured by the pretax profits of the broker/dealer operations of New York Stock Exchange (NYSE) member firms. There are now about 120 firms, down from more than 200 before the financial crisis.

In 2017, pretax profits rose by 42 percent to $24.5 billion. This followed a 21 percent increase in 2016. Profits rose in 2016 because of lower costs, while profits grew in 2017 because of higher revenues. Net revenue (the preferred industry measure) grew by 4.5 percent in 2017, the largest increase in five years, and increased by 8.6 percent in the first half of 2018. Revenue growth was strongest in wealth management and account supervision, underwriting, trading and other income related to the securities business.

The average salary (including bonuses) in New York City's securities industry increased by 13 percent to $422,500 in 2017, the highest since 2008 and the third-highest on record after adjusting for inflation. The securities industry has the highest average salary of any industry in New York City, and accounted for 21 percent of all private sector wages in 2017 even though it accounted for less than 5 percent of employment.

The average salary in the securities industry on Long Island is nearly as high as in New York City. On Long Island, the average salary grew by 10 percent in 2017 to $389,000. The level was boosted by the presence of hedge-fund firms in Suffolk County, where the average salary was $599,800, the highest of any county in the nation.

In March 2018, DiNapoli estimated that the average bonus for securities industry employees in New York City increased by 17 percent to $184,200. After adjusting for inflation, it was the highest average bonus in a decade and the fourth-highest on record. Bonuses accounted for an estimated 40 percent of securities industry wages in 2017, a larger share than in any other major industry in New York City.

Bonuses for industry employees in the city are likely to increase in 2018 for the third consecutive year based on compensation and profit trends in the first half, although it is too early to predict with certainty. DiNapoli will release his office's 2018 bonus estimate in the spring, based on tax withholding trends during the traditional bonus season.

New York state has more securities industry jobs (197,300 in 2017) than any other state in the nation, more than twice as many as second-ranked California and nearly three times those of third-ranked Texas.

The city accounts for 90 percent of the securities industry jobs in the state.

The securities industry added 10,600 jobs in the city between 2010 and 2017, bringing employment to 176,900. Despite these gains, the industry is still 6 percent smaller than before the financial crisis. The industry is on a pace to add 1,700 jobs in 2018 based on trends during the first half of the year.

DiNapoli's report also found:

Nearly one-quarter (24 percent) of securities industry workers in the city earned more than $250,000 in 2017, compared to 2.5 percent of the rest of the city's workforce.

The disparity between average salaries in the city's securities industry and the rest of the private sector peaked in 2007, when it was six times higher. The gap narrowed after the financial crisis but has remained at least 5 to 1 since 2010, with a ratio of 5.5 to 1 in 2017.

62 percent of the industry's employees live in the city, while 38 percent commute, which is the highest share of commuters in any major industry.

One-fifth of the work force commuted from New Jersey, 6 percent from Long Island and 6 percent from Westchester County. More than half (55 percent) of the commuters from Connecticut and 38 percent from Westchester earned more than $250,000 per year.

More than two-thirds of the city's securities industry workers were male and nearly two-thirds were white. More than one-fifth were Asian; 13 percent were Black or Hispanic. One-third were immigrants, the majority from Asia and Europe.

DiNapoli estimates that tax collections attributable to the city's securities industry grew by 29 percent to $4.2 billion in CFY 2018, the highest level in a decade. The growth resulted from large increases in profits, bonuses, and capital gains in calendar 2017, which were boosted by recent changes in the federal tax code and a 2008 federal law that required repatriation of deferred compensation held overseas by the end of 2017. The industry accounted for 7 percent of city tax collections in CFY 2018.

The average salary in the securities industry in New York state increased by 12 percent in 2017 to $403,100, the highest since 2008 and the third-highest on record after adjusting for inflation. New York had the highest average salary of any state in the nation, reflecting the concentration of highly compensated employees, such as chief executive officers, in New York City.

DiNapoli estimates that tax payments attributable to the securities industry in State Fiscal Year (SFY) 2017-18 rose by 7 percent to $14 billion, the highest level in a decade. As a result, the industry accounted for nearly one-fifth (18 percent) of state tax collections in SFY 2017-18.

DiNapoli estimates that each job gained or lost in the industry leads to the creation or loss of three additional jobs in other sectors.

After adjusting for inflation, pretax profits in 2017 were the highest since 2012 and profits in the first half of 2018 were the highest since 2011.

Read the report, or go to: https://www.osc.state.ny.us/osdc/rpt6-2019.pdf

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