DiNapoli: Wall Street profits up 82% in first half of 2020 despite coronavirus

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The securities industry saw its pre-tax profits rise 82% to $27.6 billion in the first six months of 2020 compared to the same period in 2019, according to New York State Comptroller Thomas DiNapoli.

To put it in perspective, this year’s first-half profits were about equal to 2019’s full-year profits of $28.1 billion.

“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 in his annual report on Wall Street performance.

Industry performance is measured traditionally by using the pre-tax profits of New York Stock Exchange member firms’ broker/dealer operations. There are now about 120 member firms, down from over 200 before the financial crisis.

“Wall Street’s successful first half helps our state and city budgets,” says NYS Comptroller Thomas DiNapoli.

The $2.4 trillion in federal stimulus funds and the lowering of interest rates to near zero, which reduced the cost of borrowing, spurred the gains, according to the report. This spurred growth in securities offerings, particularly debt, which reached record levels, the report said.

The COVID-19 pandemic disrupted financial markets as wild swings drove trading volume upward — along with firms’ commissions and income. The report showed that firms’ income from underwriting rose more than one-third in the first half compared to 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 unexpected events, DiNapoli said.

The report drilled down to look at the average annual salary for securities industry employees in New York City in 2019. The average salary including bonuses was $406,854, up 2% from 2018. It is almost five times more than 2019’s average annual salary of $82,938 for the city’s private sector workers.

The average industry bonus was $164,100 in 2019, up 3% from the year before and in line with last year’s increased profits. In the first half of this year, firms have set aside about 5% more for compensation than they did last year.

The report emphasized the size of 2020 bonuses depends on resumption of broad economic activity in the second half.

New York City has forecast a 34% decline in bonuses this year while the state’s Division of the Budget projects a decline in finance and insurance bonuses of 28% as part of its first quarter financial plan update. Larger bonus declines have only happened during the last two recessions. DiNapoli will release his annual estimate of Wall Street bonuses in March 2021.

The report also looked at geographic challenges the city and state could face.

Citing the latest U.S. Census Household Pulse Survey, the report said it showed almost 44% of households living in the New York-Newark-Jersey City metropolitan area had members who teleworked. Before the pandemic, about 5% of workers in the U.S. worked from home; for the financial activities industry that rate was less than 10%.

“Recently, some of the larger financial institutions headquartered in New York City have begun to require a growing number of their workers to return to their offices,” the report said. “The pace of return may fluctuate because safe returns will depend on the rate of contagion as well as development of a vaccine. However, it is likely that some portion of workers in the industry will continue to telecommute or work from home on an ongoing basis."

DiNapoli’s report said there was a risk that some firms and employees may relocate.

“A recent Siena College survey indicates that 44% of high-income-earning adults ($100,000 or more) have considered moving outside of New York City as a result of pandemic-related impacts,” the report said. “About 70% of employees in the securities industry earn wages of at least $100,000.”

Looking at jobs, the securities industry, with 182,100 jobs in 2019, was at its highest level since the 2008 financial crisis. This year, Wall Street is on track to lose about 7,300 jobs, erasing 45% of the jobs gained since 2013.

New York City remains the capital of the securities industry, capturing a greater share of those jobs than anywhere else, but its share has been declining over the past few years.

“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% in 2019,” the report said.

The economic impact from the industry on both the state and city has also declined.

While it is still the largest single contributor to NYC’s economy — accounting for 17% of all economic activity in 2018 — the securities industry’s share is down from its pre-recession high of 25%. Also, Wall Street’s share of state economic activity, at 5.9% in 2019, has dropped from its peak of 8.2% in 2006.

“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.”

Wall Street still provides an outsized contribution to state tax collections, accounting for $15.1 billion, or 18%, of all tax collections in the state fiscal year ending March 30.

The industry’s estimated contribution of $3.9 billion to the city’s total tax collections in its fiscal year ending June 30, was down 5% from the previous fiscal year, reflecting a decline in jobs and capital gains. Wall Street’s share of city tax revenue has declined over the past several years as the city’s economy has diversified.

“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,” DiNapoli said. “Wall Street’s growth can only be sustained if there is broad economic recovery.”

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City of New York, NY State of New York Thomas DiNapoli State budgets