More Bonus Discussion

The article doesn't address the real issue - per capita bonuses vs last year - nor does it address the fact that Q4 bonus accruals will be dismal at most firms (GS likely excluded) due to additional write-downs and the firms are firing decent # of people. Per cap bonuses will be down 30-40% and a significantly higher % of it will be in stock that vests over five years. Plus the top earners (top performing MDs) will probably make just as much as last year so they don't leave for another firm so SVP on down bonus may be down more than 30-40% avg per cap. That means $500K-3M apt market will be hurting. And there's zero deal pipeline (which takes six months to build) going into 2008 so 2008 bonuses aren't looking very pretty.

Bonus will not affect he market this year. We are not in a US market right now. THe weak dollar is supporting the market. NYC is a fire sale to a European or Brit. THe market will move about 5%/ year for the next few years until the dollar gets stronger. BTW....I am not a RE Broker.

The people on these boards are so funny. Even when it's absolutely clear now that bonus payout pool is going to be significantly higher than last year, according to the nay-sayers, bonuses are STILL going down!! Man, the amount of cosmic rationale employed is awesome!

So many people wrote so much on various threads on streeteasy about the bonus pools this past year, and how it was going to toally crash, and how that was the big indicator regarding real estate - in fact, looking back to groups of posts at the end of 2006, the general consensus was "sell now, or the market will be down 30%-40%-50%-or more-by the end of 2007."

*sigh*

wrong again....

I agree it is pretty funny. There's always something.

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In the first nine months of 2007, Goldman, Morgan Stanley, Merrill, Lehman and Bear Stearns told their shareholders that they set aside $52.4 billion for compensation, up 9 percent from a year earlier. For the whole year, the figure rises to $62.5 billion, according to analysts' estimates that combined revenue at the five largest securities firms will climb 1.7 percent to $135 billion.

That brings bonuses to almost $38 billion. The total increases when bonuses for employees at hedge funds, leveraged buyout firms and banks such as New York-based JPMorgan Chase & Co. and Frankfurt-based Deutsche Bank AG are included.

The industry's bonuses are larger than the gross domestic products of Sri Lanka, Lebanon or Bulgaria. The average $201,500 bonus is more than four times the $48,201 median household income in the U.S. last year, according to U.S. Census Bureau statistics.

Pseudonym and aifamm, it sounds like you guys work at IBs since you're basing your view on IB bonuses on a bloomberg.com article. Be sure to mention to your group head when you get your bonus # that you thought your bonus was going to be higher based on bloomberg.com. The credit markets have gotten just as bad (if not worse) over the last 2-3 weeks as they were back in August - the banks are going to take large write-downs for Q4 (which ends 11/30 for a lot of banks so there's zero chance it gets better) which isn't factored into the article's #s. I wouldn't base my view on where bonuses are going on an article written by an english major who's not in IB. There's a reason UBS and others are putting in cash comp caps ($750K for UBS) and it's not because bonuses are going to be up.

Wow ok, so NY Times is not good for articles, neither is Bloomberg. I see... so only bearish articles posted are credible then? You know, because these are written by people who are not "english majors". Gotcha thanks.

Ok, its not going to be another banner year... but according to your bear friends WS bonuses were going to be down 30-50% and thus Manhattan housing was going to be down 30-50% also.

Assuming average bonus payouts this year (far better than the 30-50% decrease the bears predicted as aifamm pointed out) Wouldn't stock that vests over 1,2, or 5 years be pretty good for the future of Manhattan real estate? Or should we ignore that benefit as well?

JuiceMan, we are chatting with real estate daytraders so it apparently matters very much.

I appreciate both bullish and bearish articles, I just like it when they have the facts straight. Do the math yourself and then tell me if you still disagree. Total bonus pool (not per cap bonus) was going to be up 20-25% this year at end of Q2 (annualize Q1 and Q2). YTD Q3 the bonus pool is up 9% per this article (it's actually around -5% when you include all the banks (eg Merrill, JPM, Citi, DB, etc). Headcount is up 15-20% at the banks this year. Assume Q4 is as bad as Q3, then divide the full year by 115-120% of last year's headcount. What do you get? How much are per cap bonuses down? That's before severance for the people they're firing at year-end - usually six months salary - and assuming Q4 isn't worse than Q3, which it likely will be. Again, why is UBS putting a cash comp cap out there (in a public press release no less) if bonuses are going to be up or even flat?

heard through the grapevine that MER bonuses will be 50-75% stock, with the extra chunk over their normal amount in stock to be 1 year vesting period....

Average Wall Street bonus fell 4.7 percent

Thomas DiNapoli
The average Wall Street bonus fell 4.7 percent last year as the subprime mortgage crisis took its toll on the financial services industry, according to a report issued by State Comptroller Thomas DiNapoli today.

The prior year's bonuses, however, set records, and DiNapoli downplayed the drop, saying this year's bonuses were not too far off from those record levels.

“The securities industry rewarded employees who performed well in 2007 even though the credit crunch battered profits,” DiNapoli said in a statement. “And, despite the decline in bonuses from last year, State and City personal income tax collections remain strong."

In total, bonuses fell 2 percent to $33.2 billion, down from a record $33.9 billion in 2006. In October, DiNapoli said Wall Street bonuses could fall by as much as 10 percent.

The news wasn't all bad on Wall Street today, at least for the biggest firms. Bloomberg News reported today that Wall Street's five biggest firms paid a record $39 billion in bonuses in 2007, despite record losses for some firms that bet heavily in mortgage-related investments.

The real estate industry has eagerly awaited bonus season to get the market off to strong start this year. DiNapoli sounded a cautionary note about looming economic problems.

"The losses sustained in the securities industry during the second half of 2007 are a fairly clear indicator that tax collections, especially from business taxes, will erode in 2008,” he said.

In the first 11 months of 2007, the financial services sector added 9,600 jobs, he said. The industry accounts for 9 percent of city tax revenues. TRD

note, since i was one of them..most European investment banks do not declare bonuses until March.

I'm in PE but many of my buddies are in IB. Most are top tier at top 5 bank and I'd say on avg their bonuses were down 25-30% vs last year. Bonuses have increased 15-20% for every year of service for the last 5 yrs or so so their bonuses were down 35-45% vs expectations.

I am not at all familiar with workings of investment banking/financial sector jobs. I'm wondering though with so much emphasis on bonuses what impact the threat of layoffs has on those receiving bonuses. It just seems with all the billions in write-offs of Citigroup, Merrill Lynch, etc and credit squeeze and talk of recession that many may be destined to lose their jobs this year and next. Wouldn't that fear make people receiving bonuses consider holding on to them for a while to see how it all shakes out versus spending all the money on a new apartment? Or am I just not seeing this right?

Kylewest, no doubt the future concerns will have some impact, though there are sector-to-sector and company-to-company differences so the drop-off in demand really cannot be fully determined.

So far, the Manhattan RE market has remained relatively strong but I think for the last few months it has softened and there is more room to negotiate, and particularly to avoid bidding wars situtions. I think it has been a stealth softness where list prices generally remain the same but bargaining opportunities have increased.

I do not believe that the combination of a Fed rate cut and congressional stimulus package will head off a recession, but it could avert the current flirtation with a disaster and keep the recession shorter and less deep. Given that the national housing market is expected to improve by mid-2008 (though some have suggested 2009 or 10), it is likely that Manhattan RE will survive without too big of a hit. One of the writers on the blog always reminds us that Manhattan RE is always the last to be hit with a downturn but usually recovers quickly.

I imagine that we'll see some more price decreases through at least mid-2008, maybe early 2009, but it will not be too much (i.e., less than 10%, maybe even less than 5%) and things will start recovering later in the year or 2009. I doubt we'll see much of a boom for another few years. I'd predict sluggish growth from 2010-2014 (for about 5 years) as the economy regroups. Unfortuately, things may look more like the 70s and 80s than the 90s, with both good and bad times rather than a generally positive trajectory.

I think short term prospects for Manhattan RE are okay (two years), medium term good (five years), and long term still excellent (ten years).

Donald Trump also had some interesting words on CNBC.

http://www.cnbc.com/id/15840232?video=625091311&play=1

I should have added that most of my buddies in IB have a very dismal outlook for their 2008 bonuses and layoffs. If deals continue at their current pace (and there are no signs that the pace will pick up), they're expecting another 15-25% of IB to be let go (most firms have fired 5-10%) and their 2008 bonuses to be down 50% or so from 2007.

Large swathes of Bear Stearns Fixed income got the message that they would get no bonus and furthermore they are lucky to have a job. I have no idea if that matters to NYC real estate though I guess it probably doesnt matter at all. However anyone who thinks that Wall Street bonuses and layoffs are not a problem is wrong. I dont care what the articles say. I saw how staff levels plummeted after the internet bubble on Wall street. This is the same thing but for Fixed Income. It was ugly then and it is happening all over again right now. This is less about 2007 bonuses and more about 2008 bonuses. It took 3 years to work through the staff hiring and risk taking excesses of the last bubble. The credit bubble too will take longer than 6 months to resolve itself. Again I dont know what this means to NYC real estate. I do know what this means to Wall Street cumulative pay however and it is not good.

Thanks Samzell. I think Manhattan RE may be at least mildly affected but in the medium term I can't see it being worse than the combination of the tech bubble burst and September 11.

It can definitely be worse than post-tech bubble burst and 9/11 because that period didn't have a 100% increase in RE prices over the prior 5 years.

In the last 12 or so years RE prices have quadrupled (and more, frequently much more, depending on the property).

Prices haven't quadrupled unless you're talking about LES and other formerly crappy areas that have been gentrified. Take a look at Elliman's 1997-2006 report:

http://www.prudentialelliman.com/NYCPhotos/retail_reports/MTHR2Q07.pdf

Manhattan RE was arguably undervalued in mid-late 1990s relative to rent and income ratios and is now pretty overvalued using those same ratios.

Well, I guess I'm going back to 95-96, which could be construed as thirteen years. In 1995 (granted, a very low point) it wasn't particularly difficult to find a large two bedroom, possibly convertible three, for $200-250,000, and this included Gramercy, much of the UWS, midtown East, etc. But, I agree with you, it was undervalued relative to rental costs. I also agree with you that it is now overvalued if one considers the rental v. purchase costs.