Securities Industry Buoyed by Federal Stimulus, Massive Influx of Liquidity
Wall St.’s Success Only Sustainable with Recovery on Main St.
“An injection of federal stimulus money, plummeting interest rates and rising volume in trading drove profits dramatically upward to a level hard to imagine in March,” DiNapoli said. “Wall Street’s successful first half helps our state and city budgets because the securities industry provides an outsized source of revenue, but the rising profits on Wall Street are disconnected from the pain being felt on Main Street. Our economy, and Main Street’s businesses and workers, are badly in need of additional support, including action in Washington on a new round of stimulus and relief. Wall Street’s growth can only be sustained if there is broad economic recovery.”
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 about 120 member firms, down from more than 200 before the Global Financial Crisis.
First half profits in 2020 were nearly equal to the entirety of 2019’s profits of $28.1 billion. The jump was propelled by $2.4 trillion in federal stimulus funds and the lowering of interest rates to near zero, which reduced the cost of borrowing. These actions spurred growth in securities offerings, particularly debt, which reached record levels. The pandemic also significantly disrupted financial markets. Wild market swings drove trading volume upward along with firms’ commissions and trading income. Firms’ income from underwriting rose by more than one-third in the first half of 2020 over the same period last year.
While continued profit growth in the second half remains to be seen, 2020 profits are on pace to surpass last year, barring any further unforeseen events.
In 2019, the securities industry was at its highest employment level since the 2008 financial crisis with 182,100 jobs. Immigrants made up over one-third of industry employees in New York City, a higher share than in 2008. This year, Wall Street is on pace to shed 7,300 jobs, erasing nearly half (45 percent) of the jobs gained since 2013.
The average salary, including bonuses, for industry employees in New York City was $406,854 in 2019, an increase of 2 percent compared to 2018. It is nearly five times more than the $82,938 average salary for the rest of the private sector in the city in 2019. As an illustration of the increase in the pay gap over time, in 1981 the average industry salary was two times higher than the rest of the private sector.
The average bonus paid in the industry for 2019 was $164,100, up 3 percent from 2018, and in line with last year’s increased profits. In the first half of 2020, firms have set aside nearly 5 percent more for compensation than last year. The size of 2020 bonuses will heavily depend on the resumption of broad economic activity in the second half of the year, as well as associated loan performance.
The city has forecast a one-third (34 percent) decline in bonuses this year. The state Division of the Budget has projected a decline in finance and insurance bonuses of 28 percent as part of the state’s first quarter financial plan update. Bonus declines of larger magnitude occurred only during the last two recessions. DiNapoli will release his annual estimate of Wall St. bonuses in March 2021.
New York remains the capital of the securities industry, with a greater share of jobs than anywhere else, but its share has long been in decline. As firms have moved to less expensive locales around the metropolitan region and the country, New York’s share of jobs has fallen from one-third in 1990 to 19 percent in 2019.
State and city economic impact from the securities industry has also lessened. The industry is still the largest single contributor to the city’s economy, responsible for 17 percent of all economic activity in 2018, but that share is down from its pre-recession contribution of 25 percent. Similarly, Wall St.’s share of state economic activity (5.9 percent in 2019, still the largest in any state) has declined from its 2006 peak of 8.2 percent.
Wall St. provides an outsized contribution to state tax collections, accounting for 18 percent ($15.1 billion) of all tax collections in state fiscal year ending March 30, 2020. The industry’s estimated contribution of $3.9 billion to the city’s total tax collections in its fiscal year ending June 30, 2020, was down 5 percent from the previous year, reflecting a decline in jobs and capital gains. Wall St.’s share of city tax revenue has declined over the past several years as the city’s economy has diversified.
The Comptroller’s report also notes that:
- New York state relies more on Wall St. than New York City because it depends more on personal income tax revenue in its budget.
- DiNapoli estimates the securities industry’s high incomes create economic activity in other sectors and that each job gained or lost on Wall St. leads to the creation or loss of three additional jobs in other industries in New York state and that 1 in 10 jobs in New York City and 1 in 15 jobs in New York state are associated with the industry.
- Net revenue (gross revenue less interest expenses, the preferred industry measure) grew by 3.8 percent in 2019, slower than the previous two years.
- Three-fifths (60 percent) of industry employees were White, 22 percent were Asian American, 9 percent were Hispanic and 7 percent were African American (based on most recently available 2019 data). Immigrants (primarily from Asia and Europe) made up over one-third (35 percent) of the employees, a higher share than in 2008 (29 percent), but lower than the immigrant share of all City employment (41 percent).
- Commuters from outside New York City accounted for 41 percent of the wages paid by the industry in New York City, with one-fifth of industry employees in the city coming from New Jersey, 8 percent from Long Island and 5 percent from Connecticut, followed by Westchester County at 4 percent (based on most recently available 2019 data).
Report
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