10/22/2013 6:00 PM ET|
Washington dysfunction may trim Wall Street profits
Profits at New York investment banks are expected to take a fourth-quarter hit as political gridlock and legal costs weigh on earnings.
Wall Street profits are likely to take a hit this year, as higher interest rates and mounting legal costs take their toll, a new report by New York State Comptroller Thomas DiNapoli forecasts.
The comptroller's annual update on the securities industry (PDF) predicts that profits for New York-based securities firms will fall well below the $23.9 billion recorded last year, and may come it at only $15 billion or so. That would mean that industry profits in the second half of 2013 would be only half the $10.1 billion recorded in the first six months of the year as regulatory and litigation costs weigh on earnings.
The straw that breaks the camel's back, DiNapoli warns, may prove to be D.C. lawmakers' inability to smoothly manage the nation's finances. "The political gridlock in Washington may take a bite out of the securities industry's profits for the fourth quarter," DiNapoli cautions. "Washington's inability to resolve budget and fiscal issues is bad for business."
So even as Wall Street has made what DiNapoli calls "an impressive comeback" from the financial crisis the reached its depths with the bankruptcy of Lehman Brothers five years ago, other (lower paying) industries continue to be stronger drivers of New York's economic recovery. In contrast to previous recoveries, DiNapoli notes again this year, Wall Street is playing a lesser role when it comes to spurring job growth in New York City.
In a typical economic recovery, Wall Street plays a leading role in terms of generating more jobs and higher wages both city- and state-wide. This time around, however, Wall Street's own recovery seems to have stalled in the summer of 2011, at least in terms of job creation. DiNapoli's office calculates that some 163,400 New Yorkers worked for Wall Street firms as of August 2013, or about 13.5 percent fewer than worked there before the financial crisis struck.
That's not great news for the city on two fronts. First of all, every Wall Street job tends to create two more jobs in New York City and another additional job in New York State, in other sectors, as the spending power of those investment bankers and traders trickles down. DiNapoli is diplomatic in his report, but is forced to acknowledge that during this recovery "the securities industry has not stimulated significant employment growth in other employment sectors."
Wall Street has ceded the leadership in job creation to other private sector businesses. While the number of new jobs created in New York City is double the number of those lost during the recession, Wall Street accounted for less than 1 percent of those gains. And average salaries in those other industries offer "substantially" lower salaries or wages. Wall Street may now account for only 5.1 percent of all private sector jobs in New York City, but its employees pocket 21.9 percent of all the wages, the report notes.
Wall Street will still be contributing more to public coffers, though. Indeed, about the only groups that may have cause to celebrate this report are the city and state revenue departments. Profits may be falling, but city tax revenues soared 27 percent to $3.8 billion in the last fiscal year, which DiNapoli attributes to changes in federal tax rules. Statewide, the securities industry accounts for nearly 16 percent of all government revenue. While that's below the peak of 20 percent recorded in recent years, DiNapoli's office forecasts that tax collections during the current fiscal year will be significantly higher than before the crisis.
The picture that the report paints of today's Wall Street is of an industry that is leaner, but whose denizens still end up pocketing very generous compensation packages. The average securities industry salary was an impressive $360,700 last year. While that's below the peak of $401,500 reported in 2007, it's still higher than recorded in any year prior to 2007 and more than five times the average private sector income in the city.
What is happening to bonuses for this year remains murky: Volatility in profits and increased regulatory scrutiny of bonus policies have put downward pressure on those payments or caused them to be restructured in ways that make it tricky for the comptroller's office to identify how big bonus payments will be for 2013.
This report card on Wall Street's financial health and wellbeing isn't going to offer much comfort to anyone. On the one hand, its critics can still point to the lavish pay that bankers and traders receive. On the flip side of the equation, however, employment growth remains stalled (except for those who happen to be in risk management or compliance) and profitability appears poised to turn south – a move that could take a further toll on the local economy and ultimately on city and state tax revenues.
DiNapoli's report is full of facts and numbers, but those details lead directly to one clear conclusion: Now that, five years after the crisis hit, Wall Street's major institutions are once again thriving, they and the regional economy may be about to start paying the price of success. JPMorgan Chase's (JPM) massive $13 billion settlement agreement with the U.S. Justice Department and other entities is one case in point.
Given such legal costs and the related need to hire more risk management experts, refrain from some formerly profitable businesses and jump through more regulatory hurdles, banking is becoming a more costly business.
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"Washington Dysfunction"? You mean printing of counterfeit ‘digital’ money 24/7? It is certainly NOT the Republicans attempting to hold the line against bankruptcy that is might effect the market - it is the out-of-control fed.
"Now the one successful engine of job growth, finance is under attack."
Financier isn't a career. In fact, if it didn't exist, we wouldn't have severe economic cycles. We have them when the currency is derailed off Main Street and hoarded for sheering greedy reasons like the markets of today. It's currency... so hoarding makes it stagnancy. The stupid idiotic fool part is- that a nation needs REAL economy where all the people work, get paid enough to live on and develop the types of happy thoughts and aspirations that prompt them to buy stuff. Forcing them to buy cheap stuff because financial tyranny controls and manipulates the course always ends poorly for the financier and pariah like lawyers, accountants, career politicians, administrators, paper and button pushers. These are low-paying careers for the sniveling who don't have the balls or tenacity for free enterprise. If you have a degree or two or six and resorted to fester in an office in one of these anti-American more like old English professions for salary... you deserve what's straight ahead, and I guarantee you it isn't a brass ring, badge, prize or cozy retirement.
.....obama will blame the GOP shut-down on every financial issue........................
Just like Bush was blamed ad nauseaum for every nuiance from 2008 to current!
Economy weakens - the shutdown is to blame.
The Dow goes down - the shutdown.....
Obamacare issues - the shutdown....
employement numbers go down - the shutdown.....
GNP - the....well you get the drill!!
Get ready to be blindsided by a barrage of new taxes. $1 trillion worth...
They'll be coming courtesy of the Affordable Care Act, otherwise known as Obamacare.
And they won't just be affecting those who make over $250,000. The bulk of these taxes will be passed on directly to the middle class.
That's because while a majority of these "stealth taxes" were designed to be taxes on businesses, they're actually transferred directly to ordinary citizens.
They include the investment income surtax, a Medicare payroll tax, even a "tanning tax" on those who utilize indoor tanning services.
"Many of those [hidden] taxes, especially those on hospitals, insurers and medical device manufacturers, will ultimately be passed on through higher health costs," said Michael Tanner an expert on the healthcare law.
In fact, analysts estimate Obamacare will cost the average taxpayer nearly $6,000 in extra taxes as early as next year.
Many of the Obamacare taxes are already in effect, others will hit January 1. But they are already infuriating millions of Americans.
While even Obamacare detractors applaud the requirement that insurance companies cover pre-existing conditions and put a stop to lifetime caps on benefits, they say these laudable benefits don't compensate for the bills high cost - especially in new taxes.
According to most experts, Obamacare will create a total of twenty new taxes or tax hikes on the American people.
In fact, the Obama administration has already given the IRS an extra $500 million to enforce the rules and regulations of Obamacare.
The new taxes don't bode well for millions of middle-class Americans. Incomes for the rich have soared this decade but middle class workers have seen their wages stagnate and even drop since the 2008 Great Recession.
Many fear Obamacare with its high insurance costs and new taxes, could provide the middle class a fatal blow.
Now the one successful engine of job growth, finance is under attack. Guess who is going to suffer, not the Boss.
The heck with ousting Congress, and being worrisome over the 2014 debt ceiling budget (although the furloughed government employees should be granted "restitution" for their two weeks without work, or darn well it's going to destroy their holiday's spending).
But this 2014 budget buster and election fiasco, is a crock. Whatever happened to the Afghan pull-out of American troops, and Victory Day and nookie? Someone is being duped over "yuppie-power" and forgetting his promise to the Armed Services. "I'll be home for Christmas?" That's better!
This is a quote from the actual Article.
"Banks for international settlements the derivative markets exploded as an international haven for speculative investments.....rising fivefold to $684Trillion in 2008 from $127Trillion in 2002....like so many tulip contracts."
You can get exact dates and data from the ClevelandFed site, via the Article, "Has the Over the Counter Derivative Market revive Yet."
It's crystal clear that most Republicans only woke up to Printing Digital Dollar issue when Obama was elected. Anything that happen before that doesn't matter unless it had something to do with a Democrat. So not only is Washington Dysfunctional, so are the Majority of folks that vote Republican. They refuse to factually address this KEY issues. And they never will.
Up/Down. Good economy/ Bad/Worse Economy.
You get sick a day and the next day you feel fine again and the same cycle pattern going on.
Tell us the truth! We know what going on. We not dumb.
They also know that perception can become reality. Therefore it's inexcusable for other Groups besides Republicans to sit idly by until elections to voice their viewpoints. Don't just let the Republicans have the MIKE unchallenged. Apparently, other parties other than Republicans are made of different stuff. Everyone else, they are too busy working actual Jobs everyday to engage in 24/7 misinformation campaigns that Republicans have become famous for. Aka most of the posts on this board for instance.
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Market participants went into today's session expecting to hear some new insight from Fed Chair Janet Yellen, who delivered the keynote address at this year's Jackson Hole Symposium. Unfortunately, the ... More
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