By Joan Gralla and Steven C. Johnson
NEW YORK, Feb 29 (Reuters) - Wall Street cash bonuses for 2011 fell to their lowest level in three years as volatile trading and stiffer regulations took a toll on profits, New York State’s comptroller said Wednesday.
The securities industry’s bonus pool was expected to total $19.7 billion, Comptroller Thomas DiNapoli said. That would be down 14 percent from 2010 but well short of the 30 to 40 percent cut in 2011 incentive pay predicted by some industry consultants.
A healthy Wall Street is an important source of tax revenue for the New York economy, though big profits and bonuses have become focal points for the Occupy Wall Street movement and stirred up national debate about wealth distribution and taxes.
“Certainly, as a New Yorker, whether you love them or hate them, we need Wall Street to be profitable,” DiNapoli said in an interview with MSNBC.
He called the industry “a critical component of the economies of New York City and New York State” and said it would continue to face challenges “as it works through the fallout from the financial crisis and adjusts to regulatory reforms.”
About 14 percent of New York State tax revenues came from Wall Street in 2010, down from 20 percent before the financial crisis, while the industry’s contribution to New York City’s tax take fell from 13 percent to less than 7 percent.
Wall Street, which still has not recovered fully from the 2008 financial crisis, is expected to cut the average cash bonus by 13 percent to $121,150, DiNapoli said in an annual report.
That is the lowest since 2008, when the crisis cut Wall Street profits by 43 percent and the average bonus was just shy of $101,000.
The industry began 2011 strongly, earning $12.6 billion in the first half, DiNapoli said. But the sector lost $3 billion in the third quarter.
DiNapoli said profits of broker/dealer units fell sharply in 2011 and will not exceed $13.5 billion, less than half 2010’s tally of $27.6 billion. It was the second consecutive year that profits fell by more than half.
The industry posted record profits in 2009, hitting $61.4 billion, a total that was boosted by federal assistance, after it lost a record total of $53.9 billion over 2007 and 2008.
Lay-offs resumed last year, with Wall Street cutting 4,300 jobs between April and December, the comptroller said.
During the financial crisis, the industry shed 28,000 workers, and only 9,600 had been hired when the new round of pink slips began last spring.
The comptroller projects about 10,000 industry jobs will disappear by the end of 2012.
Wall Street banks, including Goldman Sachs Group Inc, Morgan Stanley and JPMorgan Chase & Co, collectively cut thousands of employees from their payrolls last year as volatile market conditions put a crimp in profits.
Banks are also getting rid of staff involved in business lines that will be shut down or simplified by new regulations. Those affected include proprietary trading, hedge funds, private equity and derivatives trading.
DiNapoli said a healthy financial sector was important for the economy but added that more oversight would force firms to reduce risk and lead to more predictable and sustainable profits.
The comptroller’s estimate for bonus cuts was well below the most dire predictions of industry consultants, who forecast declines of up to 40 percent.
Alan Johnson, a Wall Street pay consultant, estimated that fixed income traders would see the biggest decline in bonuses, with equity traders and senior managers taking a hit as well.
DiNapoli said his estimate was lower because Wall Street workers were likely receiving deferred compensation from prior years being paid out this year.
But the deferred cash and stock compensation, along with a banks’ efforts to raise base salaries to make up for lower bonuses, also raised fixed costs in the industry.
Even as the financial industry tightens its belt, its workers easily out-earn other private sector employees . DiNapoli said the average salary for a securities worker rose 16 percent, to $361,180 in 2010, according to the latest data available.
The figure, which includes cash bonuses, was nearly 5.5 times higher than the average salary of $66,110 in the rest of New York City’s private sector, he said.
Morgan Stanley CEO James Gorman received a bonus of $10.5 million, down 25 percent from the previous year, Reuters has reported.
It is unclear how much Goldman chief Lloyd Blankfein’s total bonus package will be. He received a $7 million restricted stock bonus, according to a regulatory filing, 44 percent less than the value of the restricted stock he was granted in 2010.
Ken McCarthy, senior economist at real estate services firm Cushman & Wakefield, said growth in law, advertising, accounting and consulting has helped offset the effect of financial sector job cuts on the city’s commercial real estate market.
The entire financial services sector occupies about a third of Manhattan’s 392.9 million square feet of office space, according to Cushman & Wakefield.