The banks may have been bailed out – as Occupy Wall Street protesters are fond of chanting – but they are projected to earn lower profits, lose more jobs and dole out fewer sky-high bonuses for the remaining months of 2011, State Comptroller Tom DiNapoli says in a report out today.
A less-profitable Wall Street could mean trouble for the city and state’s fragile economies, which rely disproportionately on strong revenue from the financial sector. Tax collections from Wall Street are predicted to fall this year and may drop even more in 2012, the comptroller is predicting. And declining financial employment is likely to have ripple effects in the larger workforce, where one job lost on Wall Street results in almost two jobs lost in other industries in New York.
The report comes out at a time when anti-Wall Street protesters in New York and around the country are gaining momentum, a fact DiNapoli said is understandable given the market crash in 2008 and the economic recession that followed. But the comptroller also stressed that Wall Street needs to perform well in order for the state’s economy to improve, and while he sympathizes with the protesters, he also advocates for a healthy financial sector too.
“The high-risk, high-reward behavior, now we’re seeing the negative side of that,” DiNapoli told City Hall. “But I’d rather have a more stable, consistent level of profitability.”
Profits on Wall Street are projected to drop by a third from the previous year, barely reaching $18 billion by the end of 2011, DiNapoli says. Profits totaled $27.6 billion in 2010, which was $33.8 billion less than the record set in 2009, still the second-best year on record. Although profits spiked during the first half of 2011, expenses grew even faster.
Even though the banks rebounded in the second half of 2010, the comptroller is not anticipating a similar bounce this year after the release of advance reports of poor third-quarter performance at several major firms.
Likewise, the financial sector could lose nearly 10,000 more jobs by the end of 2012, in addition to 4,100 cutbacks already recorded this year. That could bring total job losses on Wall Street to 32,000 since January 2008.
Despite that hemorrhaging of jobs, total compensation for Wall Street workers rose 18.7 percent in the first half of the year. Cash bonuses are projected to fall for the second year in a row as the industry adopts regulations to discourage high-risk, high-reward compensation, but the average salary in the securities industry grew by 16 percent to $361,330, almost six times higher than the average salary in the private sector.
Wall Street had a strong start in 2011, DiNapoli said, but the worsening economy will cool those prospects considerably for the rest of the year.
“It’s still an important part of our economy. But because of all the uncertainty and volatility, we’re projecting for the second part of this year not as strong a level of profit as we anticipated at the beginning of this year,” the comptroller said. “That’s why we do need this sector of our economy to be long-term and sustainable.”
Meanwhile, Occupy Wall Street is entering its fourth week of demonstrations. Today, community groups and labor unions that organized the massive demonstrations last Wednesday are planning a similar march in Midtown today to push for the extension of the millionaire’s tax, demonstrating at the homes of well-off New Yorkers. President Barack Obama is advocating for a tax increase on high-income earners at the federal level, while Gov. Andrew Cuomo and state legislative leaders have said a similar tax at the state level is a non-starter.
Michael Kink, executive director for the Strong Economy For All Coalition and one of the organizers of the march, said the comptroller’s report should serve as a wake-up call for politicians and Wall Street alike.
“This is more proof that our current give-the-rich-anything-they-want approach to the economy isn’t working,” Kink said. “To build mass prosperity, we need public and private institutions to make decisions that benefit all of us, not just some of us. Fairer taxes, more jobs, and investments in education and human services that will pay off in the long run are a better way to go.”
DiNapoli, who will be on both Brian Lehrer and David Paterson’s radio shows today to discuss the report, said he understands the anger and frustration of the Occupy Wall Street protesters, but sought to underscore the importance of the financial sector to the state’s overall economy.
“Wall Street has always been a part of our economy, and always will be,” he said. “But we want it to be responsible in terms of the investment strategy. There’s a lot of anger on the streets out there. That’s what those demonstrations are reflective of.”
Cuomo, standing in front of St. Patrick’s Cathedral at the start of the Columbus Day parade yesterday, expressed a similar sympathy for the protesters.
“I think it’s a metaphor for the frustration. I think it’s real,” he said. “Am I surprised? No. I’m out there every day talking to the people. And it is very, very hard, and it has been for a long time.”