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23 April 2024

Wall Street bonuses fell 4.7 per cent in 2007

By Agencies


Wall Street bonuses fell nearly 5 per cent in 2007 after a relentless subprime mortgage crisis battered the stock market, forcing America’s biggest investment banks to write down billions in bad loans.

The average bonus of $180,420 in 2007 dipped 4.7 per cent from the previous year, state Comptroller Thomas DiNapoli said in a statement released Thursday.

The securities industry rewarded $33.2 billion in bonuses to its New York City employees, 2 per cent less than the record $33.9 billion in 2006, he said.

The numbers are taken from the seven largest financial firms headquartered in New York City, which are tracked by the comptroller’s office. The firms are Citigroup Inc., Merrill Lynch & Co., JPMorgan Chase & Co., Goldman Sachs Group Inc., Bear Stearns Cos., Morgan Stanley and Lehman Brothers Holdings Inc.

All except Goldman Sachs, which largely avoided the risky loans, have been battered by the financial crisis.

While the seven firms earned $39 billion in profits during the first half of 2007, a 41 per cent gain over the prior year, they lost $28 billion in the third and fourth financial quarters, DiNapoli said.

Total pretax profits for the seven firms totaled $11 billion in 2007, less than one-fifth of the $60 billion record set in 2006, the comptroller said.

Employee compensation, which includes bonuses, consumed 61 per cent of the firms’ revenues in 2007, up from 45 per cent 2006. DiNapoli said this reflected the firms’ efforts to keep high-performing employees.

Those working in mergers and acquisitions and in equities should be rewarded with bigger bonuses but employees in the fixed-income units that handle mortgages will be “dramatically lower,” the comptroller said.

Compensation experts say those high-performing units will basically subsidize whatever bonuses are left to give to flagging parts of the banks’ business. Because of the dismal performance of the Wall Street investment houses, Morgan Stanley Chief Executive John Mack and Bear Stearns Chairman James Cayne gave up their huge annual bonuses.

Last year, they were paid about $40 million in compensation.

Before 2007, Wall Street had been on a serious run. In 2005, $25.7 million in bonuses was handed out, up 38.2 per cent from 2004. (AP)