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Wall Street More Profitable in 2018 but Trader Pay Down
Traders Magazine Online News, March 28, 2019
There’s no way to sugar coat it – trader bonuses were down in 2018.
Yet as an industry, Wall Street did well for itself last year, according to the latest report and estimates from New York State Comptroller Thomas P. DiNapoli. His office reported securities industry profits in 2018 were 11 percent higher than the previous year, but the average bonus paid to industry employees in New York City declined by almost 17 percent to $153,700.
DiNapoli's office releases an annual estimate of bonuses paid to securities industry employees who work in New York City during the traditional bonus season. Bonuses paid by firms to their employees located outside of New York City (whether in domestic or international locations) are not included. The Comptroller's estimate is based on personal income tax trends and includes cash bonuses for the current year and bonuses deferred from prior years that have been cashed in. The estimate does not include stock options or other forms of deferred compensation for which taxes have not been withheld.
"Despite a sharp decline in the financial markets in the fourth quarter of 2018, the securities industry still had a good year with increased profits and employment," DiNapoli said. "Profits grew in 2018 and have nearly doubled since 2015. Bonuses declined in 2018, but the average bonus was still double the average annual salary in the rest of the City's workforce. It's too soon to say how the industry will fare in 2019, but trade tensions, a slowing global economy and greater economic uncertainty are all factors that could affect results."
Despite increased market volatility, and the worst December for the Dow Jones Industrial Average since 1931, the industry had an 11 percent growth in pretax profits for the broker/dealer operations of New York Stock Exchange member firms (the traditional measure of securities industry profits). Profits totaled $27.3 billion in 2018 -- up from $24.5 billion in 2017 -- the highest level since 2010 and 81 percent higher than in 2015 after adjusting for inflation.
Employment in New York City's securities industry increased by 4,700 in 2018 to 181,300 jobs, the highest level in a decade. With solid gains in four of the past five years, employment in the securities industry in the city is still 4 percent smaller than before the financial crisis in 2007. In contrast, the rest of the private sector in the city has grown by 25 percent since 2007.
The Office also reported:
* The 2018 bonus pool for securities industry employees who work in New York City declined by 14 percent during the traditional December-March bonus season to an estimated $27.5 billion. The bonus pool in 2017 was $32.1 billion, the largest since the 2007 financial crisis.
* The average bonus per employee in 2018 declined by almost 17 percent to $153,700 in 2018 because the pool was shared among a larger number of employees. In 2017, the average bonus grew by an estimated 18 percent to $184,400, driven in part by changes in the federal tax code that encouraged firms to move up payments to December 2017. The acceleration of payments into 2017 could have contributed to the decline in 2018.
* Industry profitability was driven in 2018 by higher net revenue, which increased by 6 percent to reach $163 billion. This was the fastest rate of growth since 2012.
* Trading revenue was up 22 percent during the first three quarters of 2018, but was down 6 percent in the fourth quarter. For the year, trading revenue was up 17 percent and accounted for 6 percent of total revenue in 2018.
* The average salary (including bonuses) in the city's securities industry ($422,500 in 2017, the latest annual data available) was more than five times higher than the average in the rest of the private sector ($77,100). Nearly one-quarter (24 percent) of the industry's employees in the city earned more than $250,000, compared with less than 3 percent in the rest of the city's workforce.
* The industry accounted for less than 5 percent of the private sector jobs in the city in 2017, but it generated more than one-fifth of all private sector wages paid in the city. DiNapoli estimates that nearly 1 in 11 jobs in the city are either directly or indirectly associated with the securities industry.
Securities-related activities are a major source of revenue for both the state and the city. DiNapoli estimates that the securities industry accounted for 18 percent ($14 billion) of state tax collections in state fiscal year (SFY) 2017-18 and 7 percent ($4.2 billion) of city tax collections in city fiscal year (CFY) 2018.
A chart showing the Comptroller's latest bonus pool and average bonus estimates, as well as past years' bonuses, is available here https://osc.state.ny.us/press/docs/wall-street-bonuses-2018.pdf.
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