Cha ching!
Twenty-seventeen was a very good year for the sell-side, traders and their wallets.
Securities industry profits rose dramatically in 2017 for the second consecutive year and the average bonus paid to financial industry employees in New York City jumped 17 percent to reach $184,220 according to an estimate released by New York State Comptroller Thomas P. DiNapoli.
“When Wall Street does well, the city and state benefit from higher tax revenues,” DiNapoli said. “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.”
Pretax profits for the broker/dealer operations of New York Stock Exchange member firms (the traditional measure of securities industry profits) skyrocketed 42 percent in 2017 after increasing by 21 percent in 2016. Profits totaled $24.5 billion in 2017, the highest level since 2010, driven by higher revenue.
After adding jobs for three consecutive years, employment in New York City’s securities industry dipped slightly in 2017, averaging 176,900 jobs. Despite recent gains, employment in the securities industry in the city is still 6 percent smaller than before the financial crisis in 2007, while the rest of the private sector in the city has grown by 23 percent.
Although smaller, the industry remains a key component of the city’s economy. The industry accounted for less than 5 percent of the private sector jobs in the city in 2016, but it generated more than one-fifth of all private sector wages paid in the city. DiNapoli estimates that nearly 1 in 10 jobs in the city are either directly or indirectly associated with the securities industry.
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.
DiNapolis office also reported:
- The 2017 bonus pool for securities industry employees who work in New York City rose by 17 percent during the traditional December-March bonus season to reach an estimated $31.4 billion. The growth in the bonus pool likely benefitted from changes in the federal tax code that eliminates the corporate deduction for performance-based pay beginning in 2018, which would encourage firms to move up payments to December 2017.
- The average bonus per employee in New York City increased by 17 percent to $184,220 in 2017. The average bonus for 2016 grew by an estimated 15 percent based on the latest payroll data from the New York State Department of Labor.
- Industry profitability was driven in 2017 by higher net revenue, which increased by 4.5 percent to reach $153 billion. Areas of strongest growth include wealth management fees, underwriting and other income related to securities business, which includes fees from advising on mergers and acquisitions.
- Trading revenue, which accounted for 8 percent of net revenue, fell sharply as the year progressed but was still up 10 percent for all of 2017.
- The average salary (including bonuses) in the city’s securities industry ($375,200 in 2016, the latest annual data available) was five times higher than in the rest of the private sector ($74,800). Nearly one-quarter (23 percent) of the industry’s employees in the city earned more than $250,000, compared with 2 percent in the rest of the city’s workforce.
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 ($13.5 billion) of state tax collections in state fiscal year 2016-2017 and 6 percent ($3.2 billion) of city tax collections in city fiscal year 2017.
The state budget assumes that statewide bonuses for the broader finance and insurance sector will increase by 4 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.
New York City’s budget assumes that the bonus pool for securities industry employees in the city will increase by 11 percent. Based on DiNapoli’s estimate, the city may realize a small amount of additional revenue.
Chart showing the Comptroller’s estimates of the bonus pool and average bonuses from 1988-2017:
http://www.osc.state.ny.us/press/releases/mar18/wall-st-bonuses-2018-sec-industry-bonus-pool.pdf
Chart showing Wall Street’s annual profits and employment:
http://www.osc.state.ny.us/press/releases/mar18/wall-st-bonuses-2018-sec-industry-empl-and-profits.pdf
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