While profits in the securities industry are expected to grow this year, employment and the cash bonus poll in New York City are projected to decline, according to an analysis released this afternoon by state Comptroller Thomas DiNapoli. The expected drop in bonuses is not good news for state government, which relies heavily on those taxes to operate.
“The securities industry remains in transition and volatility in profits and employment show that we have not yet reached the new normal,” DiNapoli said in a statement. “The securities industry is still grappling with the fallout from the financial crisis, new regulations and slow economic recovery. How the industry negotiates this continued uncertainty could impact profitability and the finances of New York City and New York State.”
The total cash bonus pool for work performed in 2012 is likely to decline for the second year in a row, DiNapoli said. The comptroller estimated in February that the cash-bonus pool for securities industry employees in New York City dropped 13.5 percent to $19.7 billion.
In the 2011-12 fiscal year, securities-related activities comprised about 14 percent of New York state’s tax revenues and roughly 7 percent of New York City’s, compared to highs of 20 percent for the state in the 2007-08 fiscal year and 12 percent for the city during its 2008 fiscal year, DiNapoli’s report said. The state is more reliant on Wall Street than New York City because it relies more heavily on personal and business taxes, it said.
Revenues in the securities industry have been dropping in recent years and profits have been volatile, DiNapoli said. There were record losses in 2007 and 2008, but they were followed by the two most profitable years on record. Profits for the first half of 2011 were $12.6 billion. That broke down for the second half of the year, when there were losses totaling $4.9 billion and the European sovereign debt crisis worsened, he said. Total profits were $7.7 billion by the end of the year.
In the first half of this year, the industry earned $10.5 billion, the report said. Short of any adverse developments that erode profitability (which is what happened last year), the industry likely will earn more than $15 billion by the end of the year. The pending fiscal cliff—the end of a number of tax cuts and the start of newly imposed budget cuts—and a further downward cycle in the domestic and global economies could cut into profits for the second half of the year, DiNapoli said.
The report also found that the securities industry has regained just 28 percent of jobs lost during the downturn. Since the beginning of the year, the industry has shed a net of 1,200 jobs, and the comptroller believes employment will continue to contract for the rest of the year. The industry in New York City lost an estimated 28,100 jobs during the financial crisis and has added 7,900 during the recovery, for a net loss of 20,200 since November 2007.