Wall Street Earnings Soar Despite Pandemic
Real Estate In-Depth | October 28, 2021
ALBANY—Wall Street’s run of prosperity extended into the first half of 2021 with $31 billion in pre-tax earnings, beating 2020’s outsized first half profits of $27.6 billion, even as job losses accelerated in New York City’s securities industry, according to State Comptroller Thomas P. DiNapoli’s annual report on Wall St.’s performance released recently.
“Wall Street’s success during the pandemic has benefited New York’s economy and finances during a difficult time. The securities industry’s strong profits have helped shore up tax revenues and securities industry workers have been among the first to return to the office,” DiNapoli said. “Financial markets move in cycles, however, and profits will subside at some point. As we prepare for an eventual slowdown in Wall Street’s record activity, we need to ensure New York’s Main Street, and its other vital sectors, are also recovering.”
Securities industry performance is traditionally measured by the pretax profits of the broker/dealer operations of New York Stock Exchange (NYSE) member firms. There are now approximately 125-member firms, down from more than 200 in 2007, before the global financial crisis.
2021’s first half gains were driven by some of the same factors that boosted profits last year: record low interest rates kept expenses down, strong trading volume, record earnings in subsectors like global equities—which had the strongest six-month period since 1980—and record revenues from underwriting and account supervision fees and investment advisory fees.
Initial third quarter results show continued strength, but there is risk that the industry’s profit growth will slow as interest rates rise and make borrowing more expensive and federal monetary stimulus ebbs. It remains unclear if Wall Street’s second half will maintain a trajectory that raises year-end profits above 2020’s pre-tax revenue of $50.9 billion or reaches the record $61.4 billion the industry generated in 2009, the report stated. The city’s June financial plan forecast Wall St.’s 2021 profits returning to pre-2020 levels, which would be equivalent to a 46% drop and is unlikely given strong first half results.
Employment in New York City’s securities industry declined by nearly 2% (or 3,600 jobs) in 2020 to 179,900 jobs. The loss of industry jobs in the city, at a time when profits are soaring, may be attributed to a combination of advances in technology and the relocation of jobs. In 2021, job losses appear to have accelerated with the industry on pace to lose 4,900 jobs, the report noted. By contrast, the city’s financial plan forecast a 5.1% gain in securities employment in 2021, with the addition of 9,200 jobs.
This year the nation is on pace to add 23,000 securities jobs. Meanwhile, post-Great Recession, the U.S. has added 115,900 jobs since 2010, while the city has added 13,700 jobs, below its share of national employment.
Despite Wall St.’s job losses, New York remains the capital of the securities industry. Its statewide 196,800 securities jobs are double those of second-ranked California. New York’s share of those jobs continues to decline, however, and it could be losing jobs to other parts of the country as industry employment grows in other states. As of August, the city was home to 17.8% of all securities industry jobs, a 32-year low.
The average salary (including bonus) for employees of the New York City securities industry in 2020 was $438,450, a 7.8% increase over 2019’s $406,854 average salary. Since 2007, the industry’s average salary in New York has been the highest in the nation, reflecting in part the concentration of highly compensated employees, such as chief executive officers, in the city. Wall Street salaries continued to be higher than any other industry and remained nearly five times higher than the $92,330 average compensation for the rest of the city’s private sector. In 1981, the gap was much narrower, with Wall Street’s average salary only twice the average pay in the rest of the private sector.
The average bonuses paid out to NYC securities industry workers in 2020 grew by 10% to $184,000 and made up 41% of wages. Based on the industry’s increased set asides for compensation this year, the city forecast a 6.5% rise in the average bonus for 2021, which would raise bonuses above the post-recession record paid out in 2017. DiNapoli’s office will release its estimate for 2021 bonuses in Spring 2022.
Wall St. accounts for just 5.2% of the city’s private sector employment, but it made up one-fifth of all wages paid in the city last year and 55% of all private sector bonus payments. It also was responsible for 14% of all economic activity in the city, more than any other industry.
The securities industry comprised 6.8% of New York state’s economy in 2020. And in city fiscal year (FY) 2021, the industry paid $4.7 billion in taxes, most of it (74%) in personal income taxes, reversing two years of declines. It was also the source of 7% of all city tax collections in city FY 2021, the highest level since FY 2015, as many of the city’s other sectors saw major declines due to the COVID-19 pandemic.
The state’s greater reliance on personal income taxes for revenue, and absence of a general real property tax, means it relies more heavily on Wall St. for tax revenue than the city. The industry accounted for 18% of all state tax collections ($14.9 billion) in state fiscal year 2021, which ended March 31, 2021.
Wall Street has led the return to the office with a higher share of employees (29%) back at their workplaces (either hybrid or full-time) compared to Manhattan office workers overall (23%), in August 2021 according to survey data from the Partnership for New York City.
The Comptroller’s report also noted:
• High incomes create economic activity in other employment sectors. One in nine jobs (or more than 11%) in the city and one in 16 jobs (more than 6%) in the state were associated with the securities industry in 2019. Each job gained or lost in the industry leads to the creation or loss of two jobs in other industries.
• In 2020, net revenue (gross revenue less interest expenses) grew to a record $198.6 billion, an increase of 17.4% over 2019.
• In 2019 (most recent data), 41% of Wall St. workers commuted from outside of the city—the highest share of commuters of any major industry. The average round-trip commute for non-city resident industry employees was just over 74 minutes, the longest of any industry.