NEW YORK CITY—Tariffs and the Facebook breach aside, the stock market is on a record run and as a result Wall Street securities firms' profits and bonuses have risen in kind.
Pretax profits for the broker/dealer operations of New York Stock Exchange member firms soared 42% in 2017. That dramatic increase followed a 21% rise in profits posted in 2016. Broker/dealer profits totaled $24.5 billion in 2017, the highest level since 2010, according to a report released on Monday by New York State Comptroller Thomas P. DiNapoli.
“When Wall Street does well, the city and state benefit from higher tax revenues,” DiNapoli says. “The large increase in profitability over the past two years demonstrates that the industry can prosper with the regulations and consumer protections adopted after the financial crisis. It is too soon to tell how increased volatility in the financial markets might impact profits in 2018.”
The average bonus paid to New York City security industry employees jumped 17 percent to reach $184,220 in 2017. The 2017 bonus pool for New York City-based securities industry employees during the traditional December-March bonus season totaled an estimated $31.4 billion. The growth in the bonus pool likely benefited from changes in the federal tax code that eliminates the corporate deduction for performance-based pay beginning in 2018, which would likely encourage firms to move up payments to December 2017, according to the New York State Comptroller's report.
The securities industry's workforce has made some gains of late, but is still six percent smaller than before the financial crisis in 2007. The rest of the private sector in the city has grown by 23 percent during that 10-year period. The New York State Department of Labor recently reported the city's unemployment rate in February was 4.2%. The private sector added 21,000 jobs in February and average weekly earnings were up 1.3%.
Securities industry profitability, driven by higher net revenue last year, increased by 4.5% to $153 billion. Areas of strongest growth included wealth management fees, underwriting and other income related to securities business that includes fees from advising on mergers and acquisitions.
Trading revenue, which accounted for 8% of net revenue, fell sharply as the year progressed, but still posted a 10% increase for 2017 as compared to a year earlier.
The average salary (including bonuses) in the city's securities industry ($375,200 in 2016) was five times higher than in the rest of the private sector ($74,800). Approximately 23 percent of the industry's employees that work in the city earned more than $250,000, compared with two percent for the rest of the city's workforce.
The higher revenue and profits on Wall Street will definitely benefit New York City and Albany. DiNapoli estimates the securities industry accounted for 18 percent ($13.5 billion) of state tax collections in state fiscal year 2016-2017 and six percent ($3.2 billion) of city tax collections in city fiscal year 2017.
The state budget currently in negotiation assumes that statewide bonuses for the broader finance and insurance sector will increase by four percent. The actual increase will likely be larger since the securities industry in New York City makes up about three-quarters of the statewide pool for finance and insurance, the report noted.
New York City's budget assumes that the bonus pool for securities industry employees in the city will increase by 11%. Based on DiNapoli's estimate, the city may realize a small amount of additional revenue from the securities industry as well this fiscal year.
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John Jordan
John Jordan is a veteran journalist with 36 years of print and digital media experience.
