Executives on Wall Street may be the latest victim of the subprime mortgage collapse and the tight credit market. Bonuses are expected to go down by at least 15 percent.
Wall Street is a city street in lower Manhattan in New York City in the United States. It runs east from Broadway downhill to South Street on the East River, through the historical center of the Financial District. Wall Street was the first permanent home of the New York Stock Exchange, and over time Wall Street became the name of the surrounding geographic neighborhood. Wall Street is also shorthand (or a metonym) for “influential financial interests” in the U.S. as well as for the financial industry in the New York City area.
Several major U.S. stock and other exchanges remain headquartered on Wall Street and in the Financial District, including the NYSE, NASDAQ, AMEX, NYMEX, and NYBOT.
‘It’s confusing,’ said Alan Johnson, managing director at Johnson Associates, a compensation consulting firm based in New York. ‘We’re in that ugly transition year. The last couple of years have been spectacular, this year is sideways at best and next year will be down a lot.’
Bonuses are the golden goose of Wall Street, constituting the bulk of compensation for bankers and traders and even for asset management professionals. Banks set aside about 50 percent of revenue to pay their employees, generally according to a combination of individual performance, group performance and overall institutional performance.
Bonuses are supposed to reflect performance over the last year, but shrinking compensation pools mean banks are looking ahead. ‘It’s not what they did,’ said one Wall Street veteran who is now at a large hedge fund. ‘It is what you think they can do next year.’
Through the third quarter, revenue at Bank of America, UBS and Merrill Lynch was down, compared with the period a year ago; at JPMorgan and Credit Suisse, it was up slightly. Morgan Stanley was up 29 percent and Goldman Sachs up 26 percent, according to Bank of America data.
Thousands of bankers and traders in mortgage-related businesses have been laid off, shrinking the compensation pool. But failing to reward so-called producers can result in high-level departures.
Michael Hecht, a research analyst at Bank of America, says the best places to be for bonuses this year (in order) are Morgan Stanley, Goldman Sachs and Lehman Brothers; the worst are Merrill and Bear Stearns.
‘We feel this year banks will use stock as a major currency to pay,’ said Michael Karp, chief executive of the Options Group. ‘We feel the stock totals will be as high as 60 or 70 percent,’ rather than the typical 50 percent.
