get ready for a really, really small Wall Street

When people (writers, or whatever) say "Wall Street", are they including financial firms based in midtown or TriBeca?

No, Meredith said the 80k from the GLOBAL workforce, what a dunce the writer is.

"Global securities firms will cut as many as 80,000 jobs, Whitney says
Meredith Whitney, formerly an analyst at Oppenheimer who now runs her own firm, predicted that securities firms worldwide will cut as many as 80,000 positions during the next 18 months. In an Aug. 31 report, Whitney forecast that the reduction will follow 2010 compensation payments. "The key product drivers of Wall Street's revenues and profits over the past decade have been in a structural decline over the past three years," according to the report. "2010 marks the first year in many in which Wall Street-centric firms will go through structural changes." Bloomberg (9/7)"

I'm usually all over calling out stupid people for writing poorly reasoned drivel not supported by data, but with this guy Elstein I can't even face the task. Just the thought is giving me a headache. I don't even know where I would start.

sidelinesitter, are you saying additional jobs will not be lost, or just disputing the amount?

I really don't even want to start becuase I might never stop, but since you asked nicely (and because I'm assuming for these purposes that Aaron Elstein's SE handle is not 'se10024') I'll answer a bit.

Short answer: disputing the amount (and that the sky is falling - conditions in the city and Wall Street incomes going back to 1989 levels and so on)

Longer answer: this dimwit has fewer people working on Wall Street sometime in the immediate future than there were in 1989. In the next sentence, he points out, helpfully for me although for him not so much, that last year (a.k.a., pretty much now) the industry made $61bn while in 1989 it made $2bn. The $61bn is probably going down, I get that. But it's not going to $2bn or for that matter within an order of magnitude of $2bn. So even in his super-simplistic world we have an industry that is, say, 20-30x as profitable as it was in 1989 using basically the same number of heads and where the measure of profitability cited is after comp, which for the uninitiated is that minor little line item on the Wall Street income statement where the people get paid about 50% of total revenue. So in his world, we have the same(-ish) number of heads but as a group they get paid 20-30x what all the heads got paid in 1989, which sort of makes the whole headcount-is-going-back-to-1989-levels-and-the-sky-is-falling-because-there-is-no-one-left-in-Manhattan-to-make-any-money argument just a teeny-weeny bit spurious.

And this is before I even start on the whole discussion about job mix - that many more of the 2010 securities jobs in NYC are high-paying front line jobs because there has been huge growth in the industry (see $61bn pre-tax profit vs. $2bn) during which huge numbers of front line jobs were added and a lot of the 1989 jobs that were clerical/back office got replaced by computers or moved to Jersey or Bangalore or wherever. Note that this trend actually starts to move the numbers more in the direction of an average 2010 Wall Street job paying 20-30x what a 1989 Wall Street job paid. But I digress.

And this is also before we get to the changing mix between securities industry jobs (as in at investment banks - sell side jobs), which were most of Wall Street in 1989, and private equity and hedge fund jobs that pay better and make up a much greater share of NYC finance industry jobs in 2010 than they did in 1989. The PE and HF jobs aren't in the "securities industry jobs" stats that everyone tears their hair out about when SIFMA's headcount numbers go down (latest here: http://www.sifma.org/uploadedFiles/Research/ResearchReports/2010/SecuritiesIndustry_Employment_20100810_SIFMA.pdf) but they are a huge driver of employment and income out of the NYC finance sector. By the way, it's fairly clear that these SIFMA numbers are what Elstien is using to get to "levels last seen in 1993" and 16,000 jobs equating to 10% of the workforce - see p.7 of the pdf in the link. If anyone has any aggregate data to compare number of firms, headcount, AuM, comp or whatever for PE and hedge funds now vs. in 1989 feel free to serve them up. Until we get them, I'll just suggest that every figure will be between 10x and 100x larger today than 21 years ago and take my chances that the data prove me wrong. My point: he's building his argument (I use this term generously) around a statistic that mattered quite a bit 20 years ago, less 10 years ago and much less today.

OK, so I answered more than a bit. This is as weak as financial "journalism" gets. He wrote today's article to congratulate himself on another article that he wrote a couple of months ago in which he drew nearly irrelevant conclusions based on an incomplete understanding (correction: a nearly complete misunderstanding) of the industry that he supposedly covers.

That turned out to be a pretty good rant. Thanks for setting me off 10024.

It's fallacious too because "the industry" then and us NYC based firms. Each one of these forms is MANY times bigger because they now, unlike then, have HUGE non-US presences. So it's NOT an apples to apples comparison at ALL! revenues from the London, Tokyo etc offices plus the asset mgt, retail bank, etc are in this. They would have been separate companies back then or some cases non-existent. To do a true apples to apples you would have proforma each and very one of these firms.

jason, can you plz stop with your sophomoric analysis of the street and its various inner workings. BORING, and really not that insightful. Stick to what you seem to know best, having an in-depth perception of the political and socio-dynamics of nyc - puke.

sideline - not aaron here. You could've simply answered that you dispute the amount (though the rant WAS good). I agree that we're not going back to '89 or '74 or '38. Those comparisons are idiotic, but... The problem with your argument seems to be assumption of the new normalin terms of leverage/profitability metrics/payout structure/etc. Deleveraging is here to stay and while the street is doing a lot of posturing and they rolled bamy on bonuses it remains to be seen who wins (my guess is that there will be no winners here)

My take is one needs to take a bottom-up approach to wall street to figure out future jobs growth. Secritization is still very weak and doesn't look like it will recover until 2012 at the earliest. High frequency trading is strong, but there are enough currents out there to question it's long term viability. Swaps trading is due to go on exchanges in 2012 as well. Commodity trading and wealth management appear stable to growing....

In summary it's just a little difficult to see the future engines of Wall Street growth.

RS please stick to what you know. Things like high frequency don't increase employment, they reduce it.

Yes & No. HFT employs a great deal of programmers. It's also a big profit generator for the firms engaged in it.

yes and yes, each programmer that makes 6 figures replaces several sales traders that each used to make 7. stop your nonsense

Well, now you are leaning in my direction. I would ban a great deal of the activity that falls under HFT.

that's pretty weak

Spot on here. Maybe the smartest people will choose being doctors and saving lives rather than the Wall Street casino. Oh well.

"The problem with your argument seems to be assumption of the new normalin terms of leverage/profitability metrics/payout structure/etc"

24 - I agree that all of these are potential weaknesses in the argument, although to split hairs on the wording my view is that I am basing my argument on observations more than assumptions. You could say that this still embeds an implicit assumption that current realities persist and I guess that is fair, although I had not been thinking about it that way until just now.

Taking leverage, we've seen a lot of deleveraging already, at least compared to what the Goldmans, Morgans or Lehmans of the world were running pre-crash (and before become bank holding companies in the case of the first two). I can't claim to have an informed view of how much more deleveraging, if any, is to come, but I would hazard a guess that we're well past half way from where it was to where it will end up. The change/shock in 2008 was so acute that I think this almost has to be the case.

Payout structure is the one that is very interesting (and very puzzling) to me. When the crisis started, I thought it was a foregone conclusion that it would be a watershed event for Wall Street compensation for a few reasons:
1) the deleveraging noted above shifted the balance between human and financial capital. Where previously the business got by with a lot of human capital managing limited equity capital (i.e., using high leverage), the post-crisis model required more equity on a relative basis. I assumed that in a broad sense the balance between employee rewards and shareholder rewards would have to shift since the shareholders are now providing a greater relative share of the resources required to run the business
2) the emperor was definitively shown to be in his birthday suit, dramatically weakening the intellectual capital-based argument for what people got paid. That argument was probably mostly self-serving in the first place, but post Bear/Lehman/AIG/subprime/Madoff/TARP/etc it seemed obvious to me that no one would believe any longer that the "talent" deserved the share of the pie that they had been getting
3) on a short-term basis, business was down and the demand for people fell, so clearly price (comp)should shift until a new equilibrium was reached. This is no different from any other cycle but I thought would have provided the conditions - weak bargaining power of employees, etc - in which the secular changes in 1) and 2), above, would be made to stick.

So there ends the theory. You're right that the Street rolled the prez in 2009. He was just in over his head going up against an entire industry of generally cunning and always self-interested people who, along with generations of predecessors, have collectively spent decades obsessing over compensation and bending the system to their will. What actually surprised me more was how effective the employees have been (so far) in rolling the shareholders as well, most notably by basically maintaining comp to revenue precedent ("payout structure" in your terminology) despite the shareholders having much more skin in the game than was previously the case.

So I'm not so much assuming that the structure won't change as asking the rhetorical question, "If the events of 2008-09 didn't create a new normal, what will it take?"

I have no problem admitting that I don't have the answers here.

"Maybe the smartest people will choose being doctors and saving lives rather than the Wall Street casino."

If all those "smartest" folks on Wall Street become doctors, I will advise the kids to become tort lawyers.

re: outlook for leverage / deleveraging, this won't help bank ROE.

http://noir.bloomberg.com/apps/news?pid=20601087&sid=a98FeQCweu.U&pos=1
Proposed rules under consideration by the Basel Committee on Banking Supervision may also lead banks to raise reserves. Germany’s 10 biggest lenders, including Deutsche Bank and Commerzbank AG, may need about 105 billion euros in fresh capital because of new regulation, the Association of German Banks estimated on Sept. 6.

Sideline, this is fantastic analysis and writing. I think you should gun for Elstein's job!

sideliner... don't disagree with your analysis, but one could argue the last 20 yrs got so profitable for WS bc (as you note) of the credit bubble of historic proportions which coincidentally dovetails nicely with worldwide RE bubble ... and where is RE going? : )

Hey you worked on Wall Street, right? That was before getting into residential real estate, right?, when you were involved in lawsuits with your tenants, right?

Hey, question, when you were at Dean Witter, did they have the Reynolds name or the Discover Card name attached to it?

That could be true. If it is, I think it will be at least a few years unwinding, as will RE. We're out of the action movie phase and into the watching-paint-dry phase at this point.

"jason, can you plz stop with your sophomoric analysis of the street and its various inner workings"

Great, then put me on ignore.

How you would ACTUALLY measure the above, anyway, is by the proportion of GDP or corporate profits as a whole the financial services sector has generated, NOT the profits of NYSE member firms. This is the correct measure of how big "Wall Street" is. you could also do it by capital-markets-related SIC codes if you wanted to be more specific. But NYSE member firm profits were not all representative of US or even NYC financial services in 20-30 years ago. Now they are MORE so because of the mega-banks, but still not entirely so. In addition, they now include many more non-US firms. So the Tokyo office of UBS does not reflect the NYC employment outlook.

sideline, don't want to be splitting hairs because I agree on the biggest point - wtf are shareholders thinking? In the old days when roe was sub 12% the axe came out in a big way both in terms of headcount and bonuses. Now that we're looking at this http://ycharts.com/companies/MS/return_on_equity#zoom=0 and others how are they putting up with it? That tells be it will get worse before it gets better.

ROE is the wrong metric. It's all about EBBS.

My 2 cents: revenues have peeked and firms will need to spend more of revenues on meeting regulatory burdens which impacts bonuses in the front office. Regarding layoffs most of the hiring last year was in the front office so that's the pretty much the primary area of over investment (I don't believe they even started to hire tech people etc). Net net I am not sure what happens but the likely scenario is revenues fall (and front office jobs are lost) while costs rise (and more lower wage jobs open up). Maybe things change in a couple years but that's a couple years from now.

By any measure wall street got to big as a percent of GDP, but it's NOT 30x relatively bigger now by any means.

Next up to the plate, BofA Merrill

http://www.nytimes.com/2010/09/21/business/21bank.html
Echoing the slowdown in activity that has hit Wall Street’s biggest institutions, Bank of America plans to cut several hundred jobs in its investment banking unit this week, according to employees...

...But according to interviews with several employees, all of whom insisted on anonymity because they were not authorized to discuss the matter, the cuts stem from the weak trading environment as well as a desire to weed out underperforming workers as the year winds down"

And as discussed above: “You want to trim your least productive, weakest players to preserve the bonus pool for everyone else,” said one banker. “We know things haven’t been great in the spring or summer.”

The toilet had too much paper and wasn't flushing so well... I think the last one might have cleared it. Me thinks all the banks are flushing in unison.

Following up on se10024 from 6 posts up, another quarter with a reported loss makes the ROE vs. employee comp comparison even more strained...

http://dealbook.blogs.nytimes.com/2010/10/20/morgan-stanley-posts-loss-for-quarter/?hp

so is meredith onto something after all?

Not sure. Bloomberg has a story that IB comp accruals at Morgan Stanley are down 8% YTD. Company reporting a loss (admittedly a messy number with some one-time items, but operating number down from prior year as well) but employees getting 92% of what they got before. Doesn't sound like the shareholders have the upper hand just yet...

It will be hard for firms to have YOY gains in this environment. The game of buying assets and making money on the appreciation is over. Bid Offer spreads have narrowed and while the cost of funds is down, so is the middle part of the yield curve, which affects NIM.

Shareholders, without real activism, will certainly continue to lose out. The salaries tend to ratchet up for many reasons, the predominant ones being still fear and greed. The fear that they will lose revenue making people unless salaries are high and/or getting higher and the greed is the desire to overpay someone from somewhere else to garner more revenues.

The problem occurs because the financial firms are public companies. The shareholder is distant and amorphous while the decisions are made by executives who themselves benefit from the high salaries. The cuts don't happen until the high salaries affect the pay or wealth of the decision makers.

That is why they were faster to cut when the firms were partnerships and why the law firms and consulting firms did cut faster in the last cycle. In those cases the decision makers were the actual owners and any salary made by an [unnecessary] employee was one they don't get to keep.

Not to imply a partners decision is based on short sighted greed, but they will only keep someone if they think they might need them later, otherwise it is goodbye.

Shareholders, without real activism, will certainly continue to lose out. The salaries tend to ratchet up for many reasons, the predominant ones being still fear and greed. The fear that they will lose revenue making people unless salaries are high and/or getting higher and the greed is the desire to overpay someone from somewhere else to garner more revenues.

The problem occurs because the financial firms are public companies. The shareholder is distant and amorphous while the decisions are made by executives who themselves benefit from the high salaries. The cuts don't happen until the high salaries affect the pay or wealth of the decision makers.

That is why they were faster to cut when the firms were partnerships and why the law firms and consulting firms did cut faster in the last cycle. In those cases the decision makers were the actual owners and any salary made by an [unnecessary] employee was one they don't get to keep.

Not to imply a partners decision is based on short sighted greed, but they will only keep someone if they think they might need them later, otherwise it is goodbye.

Morgan Stanley%u2019s bad 3Q means smaller bonuses
- Wall Street firm posts a loss for the third quarter and reveals that its investment-banker bonus pool is down 8% so far this year.
:: http://www.crainsnewyork.com/article/20101020/FREE/101029999

hey six seven--how are the toilets of wall street flushing today? f'ing plumbing is stressed, you ask me

There is a limit AvUWS. ROE has to be above COE, and WACC has to be above RoC. Banks and brokers are priced on P/B and measured by ROE. You cannot mathematically have ROEs like 1998-2007 AND 50-60% comp ratios, which is why you have already seen them ratchet down to 30-40% other than for MS. WHich will not be able to sustain its comp ratio forever.

I hear the tank reloading for a new flush.

Hey Jason, if wacc is above Coe and turns/leverage goes down to 15x from 20x WTF happens to row. That return on worker. Now where did I leave my dildo, that's a finance acronym. I'll let you fill it in.

“Everyone is depressed today (obviously you saw the numbers). Everyone in equities knows we’re going to get fu**ed at year-end. It’s going to be bad. Just waiting for the pain." (** added)
http://dealbreaker.com/2010/10/bonus-watch-10-morgan-stanley-2/#more-29746

For those who don't speak Wall Street-ese, "getting fu**ed" means "getting paid less than I want to get paid, regardless of performance". This quote is a nice capsule summary of the entitlement mindset, actually.

So I guess the conversation goes something like this:

MS equities professional: "I'm going to get fu**ed at year end"

MS shareholder: "Welcome to the club"

More on the splitting of the spoils betwen employees and shareholders. Score another one for the employees.

"These are not boom times for financial firms. Trading is down and new regulations threaten to take a bite out of future profits. Some firms have been handing out pink slips. Morgan Stanley even posted a loss in its last quarter.

Yet Wall Street pay seems to defy gravity: Bonuses will be up this year, according to a study to be released on Thursday by a Wall Street compensation expert, Alan Johnson. The survey shows that overall compensation in financial services will rise 5 percent this year, with employees in some businesses like asset management getting increases of 15 percent.

“I did not expect compensation would come back the way it has,” Mr. Johnson said. “I underestimated the industry’s resiliency.”

and

"While the current market may not necessarily justify a bump up in bonuses, Wall Street bankers and traders benefit from a curious economy of their own making. If Wall Street firms start lowering pay, employees will most likely find another firm willing to pay them more. As a result, even in difficult years, Wall Street still doles out big bonuses, typically cutting into what otherwise would go to shareholders."

http://dealbook.blogs.nytimes.com/2010/11/03/wall-street-gets-its-groove-back/?ref=business

> The survey shows that overall compensation in financial services will rise 5 percent this year

5% up a down year. if that is "resiliency"....

BLAH BLAH BLAH from the talking heads and useless analysts

Helicopter Ben just dropped $900 billion into the US, and global economy!!!!!

Wake up you Wall St haters, fear mongers and chicken littles! A tepid economic recovery is underway, Republicans now control the house (YEAH!) and consumers are feeling less suicidal and spending, six months of private sector hiring....Isn't that what we all want? Oh and Wall St is going to have a huge 4Q with QE2....Banks and Investment banks hold huge inventories of US Treasuries and just got the best stocking stuffer known to man. The rear view mirror is not where any of you should be looking. Look out into a brighter future....As far as NYC Real Estate goes, prices will be highly correlated to NYC employment which is still largely driven by Wall St.

Here's the saying you can all take to the bank, "DON'T FIGHT THE FED!!!"

"The rear view mirror is not where any of you should be looking"

Pretty much sums it up for the bears here.
Majority of them simply don't have a clue.

As opposed to the bulls, who just had their heads in the sand?

How many ways are there for you to rationalize how much more right I was than you?

Barclays Capital Said to Plan More Job Cuts by End of January By Jon Menon and Ambereen Choudhury
Nov. 30 (Bloomberg) -- Barclays Capital, the securities unit of Barclays Plc, is preparing to eliminate hundreds of jobs in the next two months following a decline in investment banking revenue, three people familiar with the matter said.
The cuts will follow a review how much capital each unit of the business uses, said two of the people, who declined to be identified as the details aren't public. That review will be completed in January, one of the people said. A spokesman for Barclays in London declined to comment.
The lender, which purchased Lehman Brothers Holdings Inc.'s North American unit in September 2008, has added 2,000 people from Europe to Asia in the past year to expand its equities and merger advisory operations outside the U.S. Revenue at Barclays Capital dropped 24 percent in the third quarter to 2.8 billion pounds ($4.35 billion) as earnings from fixed income, currency and commodities trading fell. The bank's cost-to-income ratio rose to 71 percent from 62 percent in the year-earlier period.
"Compensation ratios have to come back down after investment banks lost control of them," said Simon Maughan, co- head of equities at MF Global U.K. Ltd. in London. "It's good news for shareholders."
Barclays raised investment bankers' base salaries as a proportion of total pay, a person familiar with the matter said in December last year.
Revenue from fixed-income, currencies and commodities trading fell at most investment banks in the most recent quarter. Credit Suisse Group AG said in October fixed-income sales and trading revenue in the third quarter fell to 1.46 billion Swiss francs ($1.6 billion) from 2.48 billion francs in the year-earlier period.

Morgan Stanley

Barclays will continue to hire employees in its equities and mergers advisory teams in Asia, one of the people said.
Other firms have also been cutting employees or freezing their numbers. Morgan Stanley stopped hiring at its investment- banking unit for the rest of the year, a person briefed on the decision said in September. Bank of America Corp. is firing as many as 400 employees in its global banking and markets division, a person briefed on the matter said in the same month. Barclays Capital also cut 300 jobs across administrative and support functions, a person familiar said in August.
Barclays Capital, which previously focused on bonds, loans and foreign exchange, climbed to fifth place in the rankings for advisers on global takeovers this year from seventh in 2009, according to data compiled by Bloomberg.

Barclay's folks have been miserable for a long time. Anyone who can jump out of that place has. Don't forget they did layoffs in nyc this summer. And their trading revenue is way below plan.

Here's my take. Wall Street/Bank profits are likely to be sub-par going forward. They expanded greatly and the growth is likely over on a head count basis for quite some time. That said everyone is fighting for bigger "wallet share" , attempting to gather more assets and have enough integration to offer total solutions as they arise. So for the short/medium term head count stays flat, bonuses hold to the extent the firms don't want to lose talent(probably down some though.. and investors take the brunt of the pain.

Supposedly the Wikileaks people have a Bank of America's executive's harddrive and are going to post the contents all over the place. Supposedly BoA is nervous about it.
http://www.stltoday.com/business/national-and-international/article_51cb8fc3-6ecc-5288-93dd-659f3b33a5e4.html
""It will give a true and representative insight into how banks behave at the executive level in a way that will stimulate investigations and reforms, I presume," he told Forbes. "For this, there's only one similar example. It's like the Enron e-mails.""

And then there's this: http://www.cnbc.com/id/40434595

"Wall Street Pay Seen Dropping Broadly This Year"

"In a recently-updated survey of major investment banks and other financial-services firms, the recruiter predicts that in fixed income, where low yields have dominated recent months, pay will fall 9 percent to 16 percent, and that in equities, they’ll drop 20 percent to 26 percent. Within equities, cash and derivatives trading appear to be the hardest-hit areas, according to the survey."

After two years of this financial crisis, front page head-lines, Congressional testimonies, lawsuits, and share prices in the toilet, how could you embarrass them further? I'm all for transparency, but not sure what's left to learn..

There will clearly be fewer hedge funds. The buy-side will get hit first. How do you generate fixed income alpha when interest rates are zero? Buy floors and inverse floaters? Been done to death.

prison terms tend to be embarrassing.

Fines are paid by shareholders, not the employees. I'm not one to say wall street is run by innocents, just that this is a well gone down path.

So the boycott of Riversider is already off?

If so, what was even faster than aboutready's "farewell"
http://streeteasy.com/nyc/talk/discussion/21960-farewell

Pitiful but delightful?

Riversider?

was that supposed to be an intelligible post?

aboutready, what time in the morning do you start drinking?

aboutready, is this you talking or the alcohol?

http://www.google.com/search?q=%2Bcolumbiacounty

janejoey you ignorant slut, this is no longer an intellectual debate, this is an intervention

more columbiacounty

http://www.google.com/search?q=%2Bcolumbiacounty

columbiacounty
6 minutes ago
stop ignoring this person
report abuse along with buyerbuyer

No, along with Rachel, Carol and Erich