The Securities Industry
in New York City
Thomas P. DiNapoli
New York State Comptroller
Report 14-2010
Highlights
• The broker/dealer operations of New York Stock
Exchange member firms earned a record
$35.7 billion in the first half of 2009—more than
one and a half times the previous annual peak.
• Net revenue totaled $91.4 billion in the first half,
compared to $35 billion in the first half of 2008.
• The four largest investment firms headquartered
in New York City (for which there are data)
earned $22.6 billion in the first nine months of
2009, compared to a loss of $40.3 billion in 2008.
• Employment in the securities industry in New
York City has declined by 28,300 jobs since
employment peaked in November 2007.
• Job losses in the securities industry in New York
City are unlikely to exceed 35,000, a much
smaller loss than previously forecast. (The
industry added 3,600 jobs in September 2009.)
• Even though the securities industry accounted for
less than 5 percent of the jobs in New York City
in 2008, the industry accounted for 24 percent of
all of the wages paid in the City.
• The nation’s six largest bank holding companies
set aside $112 billion for compensation in the first
nine months of 2009, and are on track to exceed
last year’s compensation level. Individual firms
may approach or even exceed the 2007 level.
• The bonus pool (including deferred
compensation) for the securities industry in New
York City could be higher than last year based on
current compensation trends.
• New York City tax collections from Wall Street–
related activities declined by an estimated
$1.9 billion, or 40 percent, in City Fiscal Year
2009.
• Wall Street accounted for 20 percent of New
York State tax collections two years ago, but will
account for about 15 percent of tax collections in
the current fiscal year.
Office of the State Comptroller
Kenneth B. Bleiwas
Deputy Comptroller
November 2009
The global financial crisis was rooted in excessive
risk-taking, which exposed the financial industry
to historic losses when underlying assumptions
proved faulty. As the crisis unfolded, it claimed
thousands of jobs, saw the demise of storied firms,
fundamentally transformed Wall Street, and
precipitated a global recession and a fiscal crisis
for New York State and New York City.
With severe job losses in the securities industry,
Wall Street’s multiplier impact—which had
enormous benefit to New York City’s economy
during the economic expansion—worked in
reverse, leading to job losses in the rest of the
City’s economy. While the pace of Wall Street job
losses has slowed considerably, the industry is not
yet adding jobs on a sustained basis.
The national economy is slowly improving, but
Wall Street has recovered much faster than anyone
had envisioned. Profitability is on track to exceed
2006 levels, which was a banner year for the
industry. Strong profits have been driven by low
interest rates, which reduce the cost of doing
business.
Compensation is also increasing faster than
expected, leading to expectations of higher
bonuses. The federal government, which spent
trillions of dollars to support the financial sector,
has taken steps that may restrict cash bonuses and
defer compensation to future years in an effort to
reduce excessive risk-taking and reward long-term
performance. While these initiatives may reduce
personal income tax collections in the short term,
New York State and New York City could benefit
from increased stability in the financial sector.
Even in the wake of the crisis, Wall Street remains
the economic engine of both New York State and
New York City. Although the industry’s prospects
are much brighter than one year ago, it continues
to face challenges as it adjusts to the postcrisis
environment, and may still experience setbacks.
1
Financial Crisis Overview
The root cause of the current financial crisis was
excessive risk-taking by the finance industry. The
crisis was precipitated by a decline in U.S.
housing prices that began in 2006. By the end of
2007, financial firms were reporting losses related
to asset-backed securities, and as 2008 progressed,
losses widened to other types of debt instruments,
equity markets fell, and firms rushed to raise
capital in order to remain solvent.
The crisis peaked in September 2008 when
Lehman Brothers collapsed and credit markets
froze. The International Monetary Fund has
estimated that top U.S. and European banks have
lost more than $1 trillion on toxic assets and from
bad loans since the start of 2007. The U.S.
government responded—along with many other
nations—with both fiscal and monetary policy
initiatives. Nearly $9 trillion has been committed
worldwide to support the global financial system.
In October 2008, Congress approved the
$700 billion Troubled Asset Relief Program
(TARP). Originally intended to allow the
government to remove toxic assets from bank
balance sheets, TARP was instead used to inject
capital directly into the banks and to fund other
rescue initiatives, including bailout efforts for
AIG, Chrysler, and General Motors.
In October 2008, the U.S. Department of the
Treasury required the nation’s nine largest
financial institutions—Bank of America, Bank of
New York Mellon, Citigroup, Goldman Sachs,
JPMorgan Chase, Merrill Lynch, Morgan Stanley,
State Street, and Wells Fargo—to accept
$125 billion in TARP funds in exchange for senior
preferred stock and warrants. Eventually, both
Citigroup and Bank of America required
additional TARP resources. The initiative was
then expanded to smaller institutions. Ultimately,
nearly 700 banks received funds.
Beginning in June 2009, the U.S. Treasury began
to allow the large banks to repay their TARP funds
(some smaller banks had already begun
repayment). Through mid-October 2009, a total of
41 banks (including Goldman Sachs, JPMorgan
Chase, and Morgan Stanley) repaid nearly
$72 billion. In addition, the Treasury earned nearly
$12 billion from dividends on the preferred shares
it has held, and nearly $3 billion from warrants
sold back when banks repaid their TARP funds.
2 Office of the State Comptroller
Since the Federal Reserve reduced interest rates to
almost zero between September 2007 and
December 2008 in order to increase liquidity in
the financial system, it had to develop other tools
to support the system and to stimulate the
economy.
The Federal Reserve expanded existing lending
programs and created new initiatives, many of
which operated in conjunction with the Treasury.
These efforts more than doubled the size of the
Federal Reserve’s balance sheet, which rose from
$926 billion in the first week of January 2008 to a
high of $2.3 trillion in the last week of December
2008 (see Figure 1). The balance sheet has
declined only slightly since then, and the Federal
Reserve is developing an exit strategy to withdraw
liquidity from the financial system before it fuels
inflation or creates other imbalances.
Figure 1
Total Assets of the Federal Reserve
2,300
2,100
Billions of Dollars
1,900
1,700
1,500
1,300
1,100
900
700
2005-01-05
2005-04-27
2005-08-17
2005-12-07
2006-03-29
2006-07-19
2006-11-08
2007-02-28
2007-06-20
2007-10-10
2008-01-30
2008-05-21
2008-09-10
2008-12-31
2009-04-22
2009-08-12
Sources: Federal Reserve; OSC analysis
Risk Premiums
More than one year after the collapse of Lehman
Brothers, the worst of the crisis appears to be over
and some aspects of the financial markets have
almost returned to precrisis levels. One notable
area of improvement is in the pricing of risk in
financial instruments.
One common measure of risk is the difference
between the interest rate on 3-month Treasury bills
and the 3-month interbank lending rate, reflected
in the London Interbank Offered Rate (i.e., the
LIBOR). As shown in Figure 2, this spread surged
to nearly 458 basis points in early October 2008 as
the crisis intensified, but the spread narrowed as
the U.S. and other nations worked to assist the
financial sector. As the credit crunch eased and
confidence in the banking system grew, the spread
dropped to about 20 basis points in mid-September
2009—a level last seen in 2004.
 Figure 2 Figure 4
Spread Between Interest Rate on 3-Month Municipal Bond Average Yield:
Treasury Bills and LIBOR Rate 20-Year Composite
500 6.5
450 !
400 !!! 6.0
!!!
350 !!!
!
Basis Points

300 !!!! 5.5

!!!!!
!!

Percent
250 !
! !! !! !!
200 !!!! !!!!!!!!!!! ! !! !!!!!!!!!!!!!! 5.0
!
!!!!!!!!!! !!!!! !!! !! ! !
150 !!!! !!!!!!! !! !!! !!!! ! !!!!!!!!!!! !!! !!!
! !
!! !!!!
! !!!! ! !! !! !! !! !! !!!! ! !!!!
100 !!!! ! !!!!!! !!!!!!!!!!!!!!!!! !!! !!!!!!!!! !!!!!!!!!!!!!!!!!!! !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 4.5
!!!!!!!!!!!! !!!!!
50 !
!! !!!!!!!!!!!!
!!!!!!!!!!!!!!!!!!!!!! 4.0
!!!!!!!!!!!!!!!!!!!!!!!!!!!
0
1Aug07
11Sep07
22Oct07
3Dec07
14Jan08
25Feb08
4Apr08
14May08
24Jun08
4Aug08
12Sep08
23Oct08
4Dec08
16Jan09
27Feb09
8Apr09
21May09
1Jul09
11Aug09
22Sep09
2Nov09
3.5

6Jan05
31Mar05
23Jun05
15Sep05
8Dec05
2Mar06
25May06
17Aug06
9Nov06
1Feb07
26Apr07
19Jul07
11Oct07
3Jan08
27Mar08
19Jun08
11Sep08
4Dec08
26Feb09
21May09
13Aug09
5Nov09
Sources: British Bankers' Association; U.S. Board of Governors of the Federal Reserve System;
Moody's Economy.com; OSC analysis Sources: Moody’s Investors Service; OSC analysis

The premium spread between higher- and lower-

rated corporate bonds has also narrowed. During Access to Credit
the crisis, concerns about credit quality caused the Despite a Federal Reserve program that bought
spread between Moody’s top-rated Aaa corporate commercial paper to prop up the market, the level
bonds and lower-rated Baa bonds to rise, from of outstanding commercial paper fell by
0.77 percentage points on October 11, 2007, to 52 percent from its peak in July 2007 of
3.5 percentage points on December 3, 2008 (see $2.2 trillion to a low in July 2009 (see Figure 5).
Figure 3). By early November 2009, the spread Although the economy is now improving,
had narrowed to 1.12 percentage points. businesses are still finding it difficult to obtain
Figure 3 credit. The amount of commercial paper
Interest Rate Spread Between Corporate outstanding started to increase beginning in July,
Aaa-Rated and Baa-Rated Bonds but the level was far lower than in earlier periods,
4.0 and in recent weeks the amount of commercial
3.5
paper outstanding has begun to contract.
Percentage Point Spread

3.0
2.5 Figure 5
2.0
Commercial Paper Outstanding
1.5 2.4
1.0
2.2
0.5
Trillions of Dollars

2.0
0.0
2007-01-02
2007-02-21
2007-04-10
2007-05-29
2007-07-17
2007-09-04
2007-10-23
2007-12-12
2008-02-01
2008-03-24
2008-05-09
2008-06-27
2008-08-15
2008-10-03
2008-11-24
2009-01-14
2009-03-05
2009-04-23
2009-06-11
2009-07-30
2009-09-17
2009-11-05

1.8

1.6

1.4
Sources: Moody’s Investors Service; OSC analysis
1.2

The financial crisis also increased borrowing costs 1.0

2005-1-5

2005-05-04

2005-08-31

2005-12-28

2006-04-26

2006-08-23

2006-12-20

2007-04-18

2007-08-15

2007-12-12

2008-04-09

2008-08-06

2008-12-03

2009-04-01

2009-07-29
for municipalities and limited the size of issuances
that the market could absorb. Moody’s Municipal
Bond Yield 20-Year Composite shows that in Note: Data have been seasonally adjusted.
Source: Federal Reserve Board
October and December of 2008, municipal bond
yields rose above 6 percent (see Figure 4). Since Consumers are still encountering difficulty in
then, conditions have improved, and the average accessing the credit markets. Banks have reduced
interest rate was 4.8 percent in early November. their exposure by tightening lending standards and
The federal government established the Build reducing available credit lines. Many consumers
America Bonds (BAB) program to reduce have cut back on borrowing in the wake of job
borrowing costs for states and localities. Although losses. From a peak in July 2008 to September
the bonds are taxable, the Treasury reimburses 2009, the level of outstanding consumer
issuers for 35 percent of the interest payments. In installment credit fell by $126 billion to
October 2009, BABs accounted for 29 percent of $2.5 trillion (see Figure 6).
municipal bond issuances.

Office of the State Comptroller 3

 Figure 6 Equity Markets
Total Consumer Credit Outstanding Following the economic downturn of the early
2,700
2,600 2000s and the terrorist attacks of September 11,
2,500
2,400 2001, the Dow Jones Industrial Average declined
Billions of Dollars

2,300 by 37.8 percent from 11,723 on January 14, 2000,

2,200
2,100 to 7,286 on October 9, 2002. Over the next five
2,000
1,900
years, the stock market rose again, peaking at
1,800 14,164 on October 9, 2007. During the following
1,700
1,600 17 months, the Dow dropped by 53.8 percent, to
1,500 6,547 on March 9, 2009 (see Figure 8). During
2000-01
2000-07
2001-01
2001-07
2002-01
2002-07
2003-01
2003-07
2004-01
2004-07
2005-01
2005-07
2006-01
2006-07
2007-01
2007-07
2008-01
2008-07
2009-01
2009-07
this period, worldwide markets experienced
similar declines, with the index for the London
Note: Represents bank-owned and securitized credit. Data are seasonally adjusted.
Sources: Federal Reserve Board; OSC analysis Financial Times Stock Exchange (FTSE) lower by
46.6 percent and the Tokyo Nikkei index down by
Tighter credit standards and lower income levels
56.4 percent.
have affected mortgage financing. A weekly index
Figure 8
of residential mortgage originations shows that the
number of new mortgages fell sharply beginning Dow Jones Industrial Average
14,500
14,000
in late 2007 (see Figure 7). The value of 13,500
13,000
outstanding mortgages declined by $200.2 billion 12,500
12,000
during the second quarter of 2009—the fifth 11,500
11,000
10,500
consecutive quarterly decline. (Refinancing surged 10,000
9,500
throughout the first half of 2009, reflecting the 9,000
8,500
impact of lower rates.) New mortgage originations 8,000
7,500
7,000
had received a temporary lift from the tax credit 6,500
6,000
for first-time home buyers.
1/3/00
6/19/00
12/4/00
5/21/01
11/12/01
4/29/02
10/14/02
3/31/03
9/15/03
3/1/04
8/16/04
1/31/05
7/18/05
1/3/06
6/19/06
12/4/06
5/21/07
11/5/07
4/21/08
10/6/08
3/23/09
9/8/09
Figure 7
Note: Data through November 5, 2009.
Mortgages for Residential Properties Source: NYSE Euronext

550
Beginning in the second quarter of 2009,
500
worldwide equity prices rallied. As of
450
November 13, 2009, the Dow had risen by nearly
Index Level

400
57 percent, the London FTSE by 49.5 percent, and
350 the Tokyo Nikkei by 37.9 percent. Nevertheless,
300 worldwide markets are still well below their
250 previous peaks.
200
Equity market losses have had a considerable
2Jan04
23Apr04
13Aug04
3Dec04
25Mar05
15Jul05
4Nov05
24Feb06
16Jun06
6Oct06
26Jan07
18May07
7Sep07
28Dec07
18Apr08
8Aug08
28Nov08
20Mar09
10Jul09
30Oct09

impact on Americans’ retirement savings. The

Note: Data are seasonally adjusted. Urban Institute estimates that retirement accounts
Sources: Mortgage Bankers Association; OSC analysis
lost $2.7 trillion between September 2007 and
May 2009—31 percent of total assets—despite the
Financial Market Conditions market recovery that began in the spring of 2009.
Conditions in the financial markets began to Although volatility in the U.S. equity markets has
change dramatically during the third quarter of subsided markedly in recent months, it still
2007, as uncertainty increased for several remains above precrisis levels. By the end of
investment classes. Events reached a critical point August 2009, the Chicago Board Options
in September 2008 as liquidity evaporated, credit Exchange Volatility Index was 68.9 percent lower
markets froze, equity markets plunged, losses than its high in November 2008 (see Figure 9).
mounted, and financial firms failed. Conditions The current level is still about twice the average
are slowly improving, and the financial industry level for the period between January 2004 (when
has returned to profitability. the current index began) and June 2007.

4 Office of the State Comptroller

 Figure 9 Derivatives
Stock Market Price Volatility Derivatives are financial contracts whose prices
90
80 depend on the values of other underlying financial
70 instruments. They are often used to hedge risk, but
60 can also be used for speculative purposes. The
Index Value

50
total value of outstanding derivatives more than
40
30
doubled between December 2004 and June 2008,
20 peaking at $766 trillion (see Figure 11).
10
0
During the second half of 2008, the total value of
outstanding derivatives declined by 21 percent, but
1/3/2007
2/9/2007
3/20/2007
4/26/2007
6/4/2007
7/11/2007
8/16/2007
9/24/2007
10/30/2007
12/6/2007
1/15/2008
2/22/2008
4/1/2008
5/7/2008
6/13/2008
7/22/2008
8/27/2008
10/3/2008
11/10/2008
12/17/2008
1/27/2009
3/5/2009
4/13/2009
5/19/2009
6/25/2009
8/3/2009
9/9/2009
10/15/2009
growth resumed in the first half of 2009. Credit
Sources: Chicago Board Options Exchange; OSC analysis
default swaps—essentially insurance against a
default by the issuer of an underlying financial
Commodities instrument—continued to decline, falling by
The turmoil in the financial markets affected not 14 percent in the first half of 2009 after a
only financial instruments but commodities as 27 percent drop in the second half of 2008 (see
well. The price and trading volumes of Figure 11).
commodities skyrocketed before the crisis, driven Losses in derivatives trading—and the linking of
by rising demand and speculation, but the lack of firms through derivatives contracts that spread
available credit and a worldwide recession then risks—were major factors in the losses at AIG and
depressed demand (especially for energy). other firms, and in the freezing-up of markets after
According to the Bank for International the collapse of Lehman Brothers.
Settlements, the outstanding value of over-the-
Figure 11
counter derivatives contracts for commodities
Worldwide Derivatives Outstanding
reached $13.2 trillion worldwide by the middle of Total Derivatives Credit Default Swaps
2008—more than 16 times the level in mid- 800 60

2002—and then fell by 67 percent to $4.4 trillion 50

600
by the end of 2008. Similarly, the Thomson
Trillions of Dollars
Trillions of Dollars

40

Reuters/Jefferies composite commodity price 400 30

index peaked at 469.7 on July 2, 2008 (see
20
Figure 10), and then fell by 54 percent by the end 200

of February 2009. 10

0 0
Between February and October 2009, however,
Dec -04
Jun -05
Dec -05
Jun -06
Dec -06
Jun -07
Dec -07
Jun -08
Dec -08
Jun -09
Dec -04
Jun -05
Dec -05
Jun -06
Dec -06
Jun -07
Dec -07
Jun -08
Dec -08
Jun -09

this index rose by nearly 30 percent, to 270, as the Note: Total derivatives in OTC markets include foreign exchange, interest rate, equity, commodity, and
credit default swaps derivatives. Total derivatives traded on exchanges include futures and options.
financial markets stabilized and the recession Sources: Bank for International Settlements; OSC analysis
eased, and demand for and investment in
commodities grew.
Figure 10 Alternative Investments
Commodities Price Index The financial crisis also severely affected
500
alternative investments, lowering rates of return
400 and affecting the ability to raise and leverage
capital for new investments. Losses in many hedge
Index Level

300
funds were compounded by investors’ withdrawals
200 of assets, which led to the failure of many funds.
According to International Financial Services
100
London (IFSL), the value of assets under
0
management declined by 30.2 percent to
$1.5 trillion in 2008, and the number of hedge
01/31/97

01/30/98

01/29/99

01/31/00

01/31/01

01/31/02

01/31/03

01/30/04

01/31/05

01/31/06

01/31/07

01/31/08

01/30/09

funds declined by 9.1 percent that year, to about

Source: Thomson Reuters/Jefferies Commodity Research Bureau Index
10,000 (see Figure 12).

Office of the State Comptroller 5

 Figure 12 Figure 14
Global Hedge Funds Rate of Return for U.S. Private
12 2,500 Equity Investments
Number Assets 30
Venture Capital Other Private Equity
10
2,000
20
8

Billions of Dollars

Percent Return
1,500 10
Thousands

6
0
1,000
4
-10
500
2
-20

2000Q1

2001Q1

2002Q1

2003Q1

2004Q1

2005Q1

2006Q1

2007Q1

2008Q1

2009Q1
0 0
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008

Sources: International Financial Services London; OSC analysis Note: Pooled quarter-to-quarter return, net of fees, expenses, and carried interest.
Sources: Cambridge Associates; OSC analysis

According to Hedge Fund Research, hedge funds Mergers and Acquisitions

lost 23.3 percent in 2008, whereas the Standard & Mergers and acquisitions activity, which generates
Poor’s 500 stock index lost 40.7 percent (see significant revenue for the securities industry, fell
Figure 13). As financial markets have recovered, sharply beginning in the fourth quarter of 2007 as
hedge funds have also benefited. The value of the financial crisis limited the ability of firms to
assets under management has grown, and returns raise capital (see Figure 15). According to
averaged 10.9 percent during the first ten months Thomson Reuters, the total value of completed
of 2009. transactions worldwide fell from more than
Figure 13 $4 trillion in 2007 to $2.7 trillion in 2008, with the
Rates of Return: Hedge Funds vs. S&P 500 average value of each deal declining by
40
27.3 percent. For the first nine months of 2009, the
30
! value of transactions totaled $1.1 trillion—down
20

10
! ! !
!
46.9 percent compared to the same period in 2008.
! !
Percent Change

0
! ! ! ! Activity rebounded in the third quarter of 2009,
-10
rising by 42.4 percent from the previous quarter.
-20
!
Figure 15
-30
! Hedge Funds
Value of Completed Mergers and Acquisitions
-40 1,400
S&P 500
U.S. Deals All Other Deals
-50
1,200
1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009*

1,000
Billions of Dollars

Note: 2009 reflects change through October.

Sources: Hedge Fund Research; Standard & Poor’s; OSC analysis 800

600
According to IFSL, new worldwide investments
400
by private equity firms fell by 40 percent in 2008,
to $189 billion. (Preliminary data indicate that 200

private equity investments during the first half of 0

2006Q1

2006Q2

2006Q3

2006Q4

2007Q1

2007Q2

2007Q3

2007Q4

2008Q1

2008Q2

2008Q3

2008Q4

2009Q1

2009Q2

2009Q3

2009 declined by 83 percent compared to one year

earlier, to $24 billion—a 12-year low.) The Sources: Thomson Reuters; OSC analysis
inability of private equity firms to raise capital has
caused a sharp reduction in leveraged buyouts. The decline in the value of deals in the United
States during the first nine months of 2009
While private equity firms experienced large (31.4 percent) was not as severe as the decline
losses during 2008, returns on investments have elsewhere because of some very large transactions
begun to improve. In the second quarter of 2009, in the pharmaceutical industry. Although the
venture capital investments earned 0.2 percent, nation’s rebound between the second and third
while other private equity activity—primarily quarters of 2009 was very strong—an increase of
buyouts—earned 4.3 percent (see Figure 14). 162.1 percent—the value of transactions remained
well below quarterly levels in 2007 and 2008.

6 Office of the State Comptroller

As a result of the declining value of mergers and
acquisitions activity, fees associated with this
activity declined substantially during 2008 and the
first three quarters of 2009 (see Figure 16).
Imputed fees were lower worldwide by
29.6 percent in 2008, and lower for the large New
York firms by 37 percent. In the first nine months
of 2009, fees fell by about 55 percent both
worldwide and for the Wall Street firms. Fee
income rebounded with activity in the third quarter
of 2009, with fees earned by Wall Street firms
rising by 34 percent compared with the second
quarter.
Figure 16
Imputed Fees from Worldwide
Mergers and Acquisitions
Goldman Sachs
JPMorgan Chase
Morgan Stanley
Bank of America/Merrill Lynch
Citigroup
0 500 1,000
Millions of Dollars
Sources: Thomson Reuters; OSC analysis
Equity and Debt Underwriting
Activity in the equity underwriting market began
to weaken during the second half of 2007, and
declined by 42.3 percent worldwide in 2008.
Despite the lack of activity in the asset-backed
securities market, the market for new debt
underwriting rose by 22.2 percent worldwide
(19.8 percent in the United States) during the first
nine months of 2009 compared with the same
period in 2008. The growth reflects debt issued by
the United States and other nations to support
financial market intervention and economic
stimulus initiatives.
Worldwide debt issued by government agencies
grew by 137 percent to reach $1.4 trillion during
the period from January 2009 through September
2009. (In the United States, such debt increased by
282.6 percent to $435.9 billion.) Fees collected by
firms from debt underwriting grew by 31.1 percent
during the first nine months of 2009 compared
with the same period of 2008.
Asset-Backed Securities
During the middle of the decade, financial
Three Qtrs. 2007 institutions increased their reliance on asset-
Three Qtrs. 2008
Three Qtrs. 2009
backed securities. Although these securities were
risky, they proliferated based on the assumption
that home prices could not fall, thereby protecting
1,500 2,000 2,500 the value of the underlying asset; total quarterly
issuances rose to reach $930 billion in the second
quarter of 2007 (see Figure 17).
Figure 17
Value of Worldwide Issuances of
Asset-Backed Securities
1,000

Despite a 43 percent decline in initial public 800

offerings (IPOs) in the United States in 2008,
Millions of Dollars

equity underwriting rose slightly (4.6 percent), 600

reflecting efforts to recapitalize the financial 400

industry.
200
After a weak first half of 2009, worldwide equity
underwriting rebounded strongly in the third 0
2005Q1
2005Q2
2005Q3
2005Q4
2006Q1
2006Q2
2006Q3
2006Q4
2007Q1
2007Q2
2007Q3
2007Q4
2008Q1
2008Q2
2008Q3
2008Q4
2009Q1
2009Q2
2009Q3

quarter. In the United States, however, equity

underwriting declined by 18.5 percent overall Source: Thomson Reuters

during the first nine months of 2009.

A collapse in the demand for mortgage-backed
The value of IPOs in the nation fell from more securities precipitated the falloff in the overall
than $26.2 billion during the first nine months of asset-backed market. U.S. home prices had
2008 to $6.4 billion during the same period in declined by 32 percent between May 2006 and
2009. Partially offsetting the decline was a May 2009 (see Figure 18). As prices fell, it
19.1 percent increase in secondary offerings, as became more difficult to refinance, and mortgage
the financial industry raised capital in the wake of delinquencies and foreclosures rose. Such
the federal government’s stress tests. Overall, developments undermined the value of mortgage-
imputed fees for worldwide equity underwriting backed securities, leading to large losses for
rose by 32.5 percent during the first nine months financial firms.
of 2009.

Office of the State Comptroller 7

 Figure 18 Household Wealth
National Home Price Index
250
The financial crisis has taken a heavy toll on the
wealth of American households. Household
200 wealth fell from a peak of $65 trillion in the third
quarter of 2007 to $51.1 trillion in the first quarter
Index Level

150
of 2009 (see Figure 20). Households lost
100 $6.7 trillion in stocks and mutual funds and
$3.7 trillion in real estate during this period
50
(another $3.6 trillion was lost in pension funds). A
0 modest recovery began in the second quarter of
May 2006
Jul 2006
Sep 2006
Nov 2006
Jan 2007
Mar 2007
May 2007
Jul 2007
Sep 2007
Nov 2007
Jan 2008
Mar 2008
May 2008
Jul 2008
Sep 2008
Nov 2008
Jan 2009
Mar 2009
May 2009
Jul 2009
2009, as home prices stabilized and financial
markets began to recover.
Sources: Moody’s Economy.com; S&P/Case-Shiller Home Price Index
Figure 20

As shown in Figure 19, commercial real estate Net Household Wealth Outstanding
70
loans have run into problems similar to residential
60
loans. The default rates have grown from less than
2 percent in the third quarter of 2007 to 50

Trillions of Dollars
7.9 percent in the second quarter of 2009 for 40

commercial loans and 8.8 percent for residential 30

loans. The value of outstanding commercial real 20

estate loans doubled between 2000 and 2008, to 10
more than $2.5 trillion—and this value was only
0
slightly lower in the second quarter of 2009. 1990Q1
1991Q1
1992Q1
1993Q1
1994Q1
1995Q1
1996Q1
1997Q1
1998Q1
1999Q1
2000Q1
2001Q1
2002Q1
2003Q1
2004Q1
2005Q1
2006Q1
2007Q1
2008Q1
2009Q1
Figure 19
Source: Federal Reserve Board
Delinquency Rates for Mortgages
9
8
! Commercial Residential The recession—with its associated job losses and
!
7 reductions in income—has further stressed
!
6
!
household finances, and more consumers are
Percent

5
!
! having trouble paying their bills. Data from the
4
3
! Federal Reserve indicate that the delinquency rate
!
2 !!
! !! !! !! !
! !! !! !
! !! ! !
! on various consumer loans has risen by about half
!! !! !! !! !! !! !
1
since the beginning of 2007 (see Figure 21). Many
0
financial firms, after recognizing losses on the
1999Q1
1999Q3
2000Q1
2000Q3
2001Q1
2001Q3
2002Q1
2002Q3
2003Q1
2003Q3
2004Q1
2004Q3
2005Q1
2005Q3
2006Q1
2006Q3
2007Q1
2007Q3
2008Q1
2008Q3
2009Q1

values of their mortgage loan portfolios, are now

Note: Data have been seasonally adjusted. beginning to increase their write-offs from losses
Source: Federal Reserve
on credit cards and other consumer loans.
Worldwide underwriting for asset-backed Figure 21
securities began to show signs of recovery in Consumer Delinquency Rates
9
2009, although activity is still well below 2007 8
Credit Card Loans Other Consumer Loans

levels. During the first nine months of 2009, total 7

issuances were 83.4 percent lower than during the 6

Percent

5
same period in 2007, and 21.9 percent lower than 4
the first nine months of 2008. The rates of decline 3
in the United States were similar to those 2
1
worldwide. Issuances have increased, however, 0
since the low reached in the fourth quarter of
1991Q1
1992Q1
1993Q1
1994Q1
1995Q1
1996Q1
1997Q1
1998Q1
1999Q1
2000Q1
2001Q1
2002Q1
2003Q1
2004Q1
2005Q1
2006Q1
2007Q1
2008Q1
2009Q1

2008.
Notes: Data are seasonally adjusted. Loans are considered delinquent if payments are
past due by 30 days or more.
Sources: Federal Reserve Board; Federal Financial Institutions Examination Council;
OSC analysis

8 Office of the State Comptroller

Wall Street Profits As shown in Figure 23, profitability has improved
at each firm. Even Merrill Lynch, which lost more
After incurring significant losses and a sharp
than $41 billion last year, reported a gain of
decline in revenues in 2008, the financial industry
$2.4 billion through the first nine months of 2009.
has begun to recover. As shown in Figure 22, five
These results helped improve the overall
of the six largest bank holding companies in the
performance of their parent companies (i.e., bank
nation had much higher pretax profits during the
holding companies), as other financial
first three quarters of 2009 than they did for all of
operations—such as consumer credit cards—are
2008. This was driven by significant increases in
generating losses that are still holding down
revenues and low interest rates, which held down
overall earnings.
the cost of doing business. All of these firms were
considered “too big to fail” by the Treasury, and Figure 23

all received initial TARP distributions. Four firms Profits at Four Major Firms Headquartered in New
York City
(Goldman Sachs, JPMorgan Chase, Morgan
(in millions)
Stanley, and Wells Fargo) have since repaid the
Treasury. Firm 2008 2009 YTD
Goldman Sachs $2,336 $12,452
Figure 22
Merrill Lynch (41,336) 2,435
Profit and Revenue Trends at the Nation's Six Largest Bank Morgan Stanley 2,187 114
Holding Companies JPMorgan Chase Investment Bank (3,524) 7,605
(in millions)
Total (40,337) 22,606
2008 Profits 2009 YTD 2009 YTD
Firm
(Losses) Profits Revenue Chng.
Note: JPMorgan Chase includes Bear Stearns. Profits are before taxes.
Bank of America ($36,908) $5,779 55.5%
Citigroup (38,147) 6,637 62.9% Sources: Corporate earnings statements; OSC analysis
Goldman Sachs 2,336 12,452 49.4%
JPMorgan Chase 4,679 12,267 33.0% According to the Securities Industry and Financial
Morgan Stanley 2,187 114 -46.2%
Wells Fargo 3,585 13,915 24.0% Markets Association (SIFMA), the broker/dealer
Total (62,268) 51,164 operations of New York Stock Exchange (NYSE)
Notes: Bank of America includes Merrill Lynch and Countrywide. JPMorgan member firms sustained losses in five of the six
Chase includes Bear Stearns and Washington Mutual. Wells Fargo includes quarters prior to 2009 (see Figure 24). Pretax
Wachovia. Data for 2009 includes first three quarters only. Profits are before
taxes. Change is from the same period one year earlier. profits totaled a record $35.7 billion during the
Sources: Corporate earnings statements; OSC analysis first half of 2009—more than one and a half times
the previous annual peak in 2000. Member firms
In past years, we have examined the pretax profits sustained losses of $11.3 billion in 2007 and
of the seven largest securities firms headquartered $42.6 billion in 2008. Profitability soared because
in New York City. The financial crisis, however, revenues rose while the cost of doing business—
permanently changed the landscape for these particularly interest costs—declined. Future
firms: Bear Stearns was acquired by JPMorgan profitability could be reduced by rising interest
Chase in March 2008 as it was on the verge of rates and changes in the regulatory environment.
failure; Lehman Brothers failed in September
Figure 24
2008; and Merrill Lynch was sold to Bank of
America in December 2008 (although profits
Profits of NYSE Member Firms
30

continue to be reported separately).

20

In addition, Goldman Sachs and Morgan Stanley

Billions of Dollars

10
converted to commercial banks, which changed
the timing of their respective fiscal years—and all 0

prior periods have not been restated. Finally,

-10
because of accounting changes, it is no longer
possible to isolate Citigroup’s investment banking -20

operations from the rest of the bank. As a result,

-30
we have narrowed our survey to the pretax profits
Q1/05
Q2/05
Q3/05
Q4/05
Q1/06
Q2/06
Q3/06
Q4/06
Q1/07
Q2/07
Q3/07
Q4/07
Q1/08
Q2/08
Q3/08
Q4/08
Q1/09
Q2/09

of four firms: Goldman Sachs, Merrill Lynch,

Sources: Securities Industry and Financial Markets Association; NYSE Euronext
Morgan Stanley, and JPMorgan Chase Investment
Bank.

Office of the State Comptroller 9

As shown in Figure 25, net revenues (excluding In the rest of the nation (excluding New York
interest expenses) reached a historic high— State), employment in the securities industry
$57.7 billion—in the second quarter of 2009. peaked in March 2008 at 657,800 jobs. As of
While total revenues have been higher in other September 2009, it had declined by 9.2 percent, or
quarters, the sharp decline in interest expenses (to nearly 61,000 jobs. Given the slower rate of
$5 billion in the second quarter of 2009 from a decline in the rest of the nation, New York City’s
high of $76.3 billion in the last quarter of 2007) share of all securities industry jobs in the country
has allowed net revenues to surge. Additionally, has fallen slightly, from 22 percent in November
firms reported gains on their own securities 2007 to 20.6 percent in September 2009. (In
trading accounts in 2009 compared to losses in contrast, the United States suffered proportionally
2007 and 2008, and other income soared, greater losses in the banking sector.)
especially in the second quarter of 2009. Figure 27 shows that employment in the securities
Figure 25 industry in New York City contracted by
Net Revenues at Securities Firms 21 percent after the 1987 market crash and by
60
20.4 percent after the 2000 dot-com correction. In
50
the current downturn, job losses began more
slowly, but then accelerated rapidly. Over the past
Billions of Dollars

40

30
three months, job losses have begun to slow and
the industry even added 3,600 jobs in September
20
2009. Though it is too early to say the industry is
10 on a sustained course to add jobs, the recent
0
developments are encouraging.
Q1/05
Q2/05
Q3/05
Q4/05
Q1/06
Q2/06
Q3/06
Q4/06
Q1/07
Q2/07
Q3/07
Q4/07
Q1/08
Q2/08
Q3/08
Q4/08
Q1/09
Q2/09

Figure 27

Note: Net revenues are revenues less interest expenses. New York City Securities Industry
Sources: Securities Industry and Financial Markets Association; OSC analysis
Employment Downturns
Cumulative Percent Change in Employment

0
Employment Current Downturn
-5
Employment in the securities industry in New 1987 Crash
York City peaked at 189,200 jobs in November -10

2007 (see Figure 26). As of September 2009, the -15

industry had lost 28,300 jobs (a decline of
-20
15 percent), which was a much deeper reduction Dot-Com Correction and 9/11
than elsewhere in the nation. While the initial rate -25
0
2
4
6
8
10
12
14
16
18
20
22
24
26
28
30
32
34
36
38
40
42
44
46
48
of decline was modest, job losses accelerated in Duration in Months
the first half of 2009 before easing in the third Sources: NYS Department of Labor; OSC analysis
quarter. Industry employment elsewhere in the
State has remained essentially unchanged. Job losses have spread throughout the rest of the
financial sector. New York City’s credit
Figure 26
intermediation sector has lost 10,100 jobs, a
Securities Employment in New York State
260
decline of 10.5 percent, since March 2007.1 The
New York City Rest of State
240 losses followed growth in this sector during the
220
200 mid-2000s (after declines for more than two
Thousands of Jobs

180
160
decades), which ended in 2007 (see Figure 28). In
140 the rest of the State, although job losses in credit
120
100 intermediation began more than six months earlier
80
60
than in New York City, the decline has been
40 nearly the same—10.6 percent or 9,200 jobs.
20
0
Jan 90
Jul
Jan 91
Jul
Jan 92
Jul
Jan 93
Jul
Jan 94
Jul
Jan 95
Jul
Jan 96
Jul
Jan 97
Jul
Jan 98
Jul
Jan 99
Jul
Jan 00
Jul
Jan 01
Jul
Jan 02
Jul
Jan 03
Jul
Jan 04
Jul
Jan 05
Jul
Jan 06
Jul
Jan 07
Jul
Jan 08
Jul
Jan 09
Jul

1
Note Data have been seasonally adjusted. The credit intermediation sector includes commercial and
Sources: NYS Department of Labor; OSC analysis
savings banks, consumer and commercial lending, and
mortgage financing.

10 Office of the State Comptroller

Employment in the insurance industry in New Figure 28
Other Financial Employment in New York State
York City has been in slow decline for two Credit Intermediation
decades, and an additional 1,300 jobs were lost 260
240
New York City Rest of State

between November 2007 and September 2009. 220

200
The insurance industry is the largest finance sector

Thousands of Jobs
180
employer in New York State outside of the City, 160
140
accounting for 35.4 percent of the jobs. 120
100

The real estate industry in New York City, which 80

60
continued to add jobs until March 2008, has lost 40
20
5,600 jobs since then, which brings employment to 0

Jan 90
Jul
Jan 91
Jul
Jan 92
Jul
Jan 93
Jul
Jan 94
Jul
Jan 95
Jul
Jan 96
Jul
Jan 97
Jul
Jan 98
Jul
Jan 99
Jul
Jan 00
Jul
Jan 01
Jul
Jan 02
Jul
Jan 03
Jul
Jan 04
Jul
Jan 05
Jul
Jan 06
Jul
Jan 07
Jul
Jan 08
Jul
Jan 09
Jul
the November 2004 level. The real estate industry
outside of the City lost 2,500 jobs between
Insurance
November 2007 and April 2009, but has since
260 New York City Rest of State
recovered most of its job losses. 240
220
Total employment in the financial sector has 200

Thousands of Jobs
180
declined by 8.9 percent (42,000 jobs) in New York 160
City since a peak in November 2007, compared 140
120
with a 2.4 percent decline (6,300 jobs) in the rest 100
of New York State. In the rest of the nation, 80
60
financial employment peaked earlier (in December 40

2006) than it did in New York City, and the 20

0
subsequent rate of decline was lower (7.6 percent

Jan 90
Jul
Jan 91
Jul
Jan 92
Jul
Jan 93
Jul
Jan 94
Jul
Jan 95
Jul
Jan 96
Jul
Jan 97
Jul
Jan 98
Jul
Jan 99
Jul
Jan 00
Jul
Jan 01
Jul
Jan 02
Jul
Jan 03
Jul
Jan 04
Jul
Jan 05
Jul
Jan 06
Jul
Jan 07
Jul
Jan 08
Jul
Jan 09
Jul
or 416,000 jobs). The City also has lost
proportionally more higher-paying jobs (primarily Real Estate
260
in the securities industry) than the rest of the 240
New York City Rest of State

nation. 220
200
New jobs on Wall Street create jobs in other 180
Thousands of Jobs

160
industries through multiplier effects due to high 140
compensation levels in the securities industry. The 120
100
Office of the State Comptroller estimates that each 80

new job in the securities industry leads to the 60

40
creation of two additional jobs in other industries 20

in New York City.2 The model also shows that 0

Jan 90
Jul
Jan 91
Jul
Jan 92
Jul
Jan 93
Jul
Jan 94
Jul
Jan 95
Jul
Jan 96
Jul
Jan 97
Jul
Jan 98
Jul
Jan 99
Jul
Jan 00
Jul
Jan 01
Jul
Jan 02
Jul
Jan 03
Jul
Jan 04
Jul
Jan 05
Jul
Jan 06
Jul
Jan 07
Jul
Jan 08
Jul
Jan 09
Jul
each new Wall Street job creates 1.2 jobs
Note: Data have been seasonally adjusted.
elsewhere in New York State, mostly in the City’s Sources: NYS Department of Labor; OSC analysis
suburbs. A large number of Wall Street’s
employees are commuters who spend part of their quarters of all the jobs lost in the City. During the
incomes in their home communities. same time period the State lost 265,200 jobs, with
With employment in the securities industry now Wall Street, directly and indirectly, accounting for
declining, Wall Street’s multiplier impact—which 43 percent of the jobs lost.
had enormous benefit to the City’s economy The Office of the State Comptroller forecasts that
during the economic expansion—is now working job losses in the securities industry in New York
in reverse, leading to job losses in the rest of the City are unlikely to exceed 35,000, reflecting the
City’s economy. Between September 2008 and rapid improvement in the industry. Just five
September 2009, the City lost 106,300 jobs. Wall months ago, New York City’s adopted budget for
Street directly and indirectly accounted for three- the current fiscal year had assumed a loss of
47,000 jobs. Similarly, total job losses in New
2
OSC used the IMPLAN input-output model, originally York City are unlikely to exceed 175,000—
developed for the federal government with detailed inter- significantly less than the City’s June 2009
industrial economic transaction data, to model the effects
of regional economic changes. forecast of 328,000 lost jobs.

Office of the State Comptroller 11

Compensation activities, and to nonexecutive employees whose
activities may expose firms to material amounts of
The financial crisis has fueled considerable risk. Under the guidelines, firms are discouraged
worldwide debate about how compensation from providing incentives to employees for
practices contributed to excessive risk-taking, activities that encourage excessive risk-taking
which ultimately damaged the financial system beyond the firm’s ability to identify and handle
and brought about the collapse of major firms. As risk. These guidelines take effect in the current
the crisis has begun to recede and compensation bonus year. Congress is also considering
levels have begun to rise, high compensation has legislation that would regulate compensation in
again become controversial given the level of the finance industry.
government support that the financial sector
required during the crisis, and the large amount of Even though financial firms have increased the
government aid that has yet to be repaid. amount of money set aside for compensation in
the current year as profitability has improved,
The United Kingdom was the first nation to adopt compensation reforms could restrict the amount
new regulations governing executive that is paid in cash and increase the amount
compensation. In August 2009, the British deferred to future years.
Financial Services Authority (FSA) announced
rules that modified compensation practices for Compensation (including salaries and bonuses) at
26 large firms and provided guidelines for smaller the nation’s six largest bank holding companies
firms. The rules, which will take effect January 1, (after adjusting for mergers) totaled $163.9 billion
2010, require firms to implement compensation in 2007 but then fell sharply to $137.2 billion in
policies consistent with effective risk 2008 (a decline of 16.3 percent). During the first
management. nine months of 2009, the six firms have set aside
$112 billion for compensation (see Figure 29), and
In September 2009, the rules were expanded when some of these firms are on track to approach or
U.K. subsidiaries and branches of global banking even exceed their 2007 compensation levels. After
firms adopted the compensation reforms that were taking into account job losses, average
agreed to at the G-20 summit in Pittsburgh. The compensation could also exceed the 2007 level at
reforms include deferring 40 percent to 60 percent some firms.
of compensation over three years, limiting bonus
agreements to one year, and reducing and/or
recalling compensation following poor Figure 29
performance (i.e., clawbacks). Compensation Trends at the Nation's Six Largest
Recently, the Special Master for TARP Executive Bank Holding Companies
Compensation halved pay for the top 25 (in billions)
executives at the seven firms that received Firm 2007 2008 2009 YTD
exceptional levels of assistance but have not yet
Bank of America $38.8 $35.4 $24.2
repaid the Treasury (AIG, Bank of America,
Citigroup 33.9 31.1 18.7
Citigroup, General Motors, GM GMAC, Chrysler, Goldman Sachs 20.2 10.9 16.7
and Chrysler Financial). The Special Master also JPMorgan Chase 29.9 25.4 21.8
promulgated rules that require these firms to Morgan Stanley 16.6 11.3 10.9
reduce cash compensation to their top employees Wells Fargo 24.5 23.1 19.7
Total $163.9 $137.2 $112.0
and to provide compensation that is contingent on
long-term performance (such as stock). While cash Notes: Bank of America includes Merrill Lynch and
bonuses and overall compensation will be reduced, Countrywide. JPMorgan Chase includes Bear Stearns and
in many instances base pay has been raised. Washington Mutual. Wells Fargo includes Wachovia. Data for
2009 includes first three quarters only.
For the 28 largest financial firms that either repaid
Sources: Corporate financial statements; OSC analysis
or did not receive TARP aid, the Federal Reserve
Board has issued compensation guidelines. The
guidelines apply to senior-level executives and
others responsible for the oversight of firmwide

12 Office of the State Comptroller

At both Bank of America and Citigroup, total Historically, compensation at securities firms
compensation is likely to be lower in 2009 than it represented about 50 percent of net revenues
was last year, driven by downsizing and weak before 2007 (see Figure 32). The ratio then
profits. These two firms had the most severe changed dramatically, averaging more than
problems during the crisis, and the Special Master 90 percent during the second half of 2007 through
for TARP Executive Compensation has cut the second half of 2008 while revenues contracted
compensation for top employees and has issued sharply. During the first half of 2009,
guidelines that will reduce cash compensation. compensation represented only 36 percent of net
revenues as a result of sharply higher revenues
Compensation has improved at the four largest
(161 percent) and lower interest costs.
investment firms headquartered in New York City.
Goldman Sachs and JPMorgan Chase are both on Figure 32

track to pay out more in compensation in 2009 Compensation as Share of Net Revenues
than in 2007. Compensation is still declining at 100
Merrill Lynch and Morgan Stanley, where the rate

Share of Net Revenues

80
of decline has slowed since last year (see Figure
30). 60

Figure 30 40

Change in Compensation at the Four Largest Financial

20
Firms Headquartered in New York City
0

H1/00
H2/00
H1/01
H2/01
H1/02
H2/02
H1/03
H2/03
H1/04
H2/04
H1/05
H2/05
H1/06
H2/06
H1/07
H2/07
H1/08
H2/08
H1/09
Firm 2008 2009 YTD
Goldman Sachs -45.8% 46.3%
Note: Results are for broker/dealer operations of New York Stock Exchange member firms.
JPMorgan Chase Investment Bank -25.8% 20.5% Sources: Securities Industry and Financial Markets Association; OSC analysis
Merrill Lynch -5.7% -17.6%
Morgan Stanley -31.8% -9.2% Industry Wages and Average Salaries
Notes: JPMorgan Chase includes Bear Stearns. Data for 2009
includes first three quarters only. Change is from the same period
The securities industry accounted for 24 percent of
one year earlier. the wages paid in New York City in 2008, even
Sources: Corporate financial statements; OSC analysis though the industry accounted for only 5 percent
of the jobs. Despite the turmoil in the financial
According to SIFMA, compensation paid by the markets, total wages paid in the securities industry
broker/dealer operations of member firms of the in New York City declined by only 2.7 percent in
New York Stock Exchange reached a record 2008, because the majority of near-record bonuses
$71.1 billion in 2006 (see Figure 31), but then earned during 2007 were paid during the first
declined by 2.1 percent in 2007 and by another quarter of 2008.3 (The sharp decline in 2008
14.1 percent in 2008. In the first half of 2009, bonuses will be reflected in 2009 wages.)
compensation declined only slightly compared to
the same period in 2008. Because employment has The average salary in the securities industry in
been sharply reduced during this period, average New York City declined slightly in 2008, falling
compensation levels have risen. by 2.3 percent to $392,130 from a peak of
Figure 31 $401,500 in 2007 (see Figure 33). Nevertheless,
Compensation at NYSE Member Firms average salaries in the securities industry were still
80
First Half Second Half
more than 6 times greater than in other industries.
Since 2003, salaries have grown by 73 percent
60 compared to a gain of only 20.4 percent in
Billions of Dollars

nonfinancial industries. The average industry

40 salary will be much lower in 2009 (reflecting the
sharp decline in 2008 bonuses that were mostly
20 paid during the first quarter of 2009), but will still
be much higher than nonfinancial salaries.
0
2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

3
Note: Results are for broker/dealer operations of New York Stock Exchange member firms.
Sources: Securities Industry and Financial Markets Association; OSC analysis
Wages fell by more than 7 percent in credit intermediation,
were basically unchanged in insurance, and rose slightly in
real estate.

Office of the State Comptroller 13

The average salary for the rest of the financial 25 percent less than last year.) Compensation
sector also fell, declining by 2 percent to reform, however, will restrict the amount paid this
$110,740, primarily due to a decline in credit year in cash and will increase the amount deferred
intermediation. For all other nonfinancial to future years. Early next year, the Office of the
industries in the City, the average salary rose by State Comptroller will release its forecast of cash
2.2 percent to $59,900. bonuses paid in New York City based on
Figure 33 compensation patterns at the end of the year and
Average Salaries in New York City tax collections beginning in December 2009.
$450,000

$400,000
Securities Industry The New York State Division of the Budget
Rest of Finance
$350,000 Nonfinancial Industries
assumes that cash bonuses for the entire financial
$300,000 sector will decline statewide by 22 percent in
$250,000 2009, which is a reasonable assumption for
$200,000 financial planning purposes, given the uncertainty
$150,000 introduced by compensation reform. Even if cash
$100,000
bonuses were to increase this year, the additional
$50,000
tax revenue would reduce the State’s budget gap
$0
for this year by a relatively modest amount.
2000

2001

2002

2003

2004

2005

2006

2007

2008

Figure 34
Sources: NYS Department of Labor; OSC analysis
Wall Street Bonuses
35
Most of the highest-paying positions in the
securities industry (e.g., chief executives, 30

investment bankers, financial advisors, and other Billions of Dollars 25

senior managers) are still located in New York 20

City, and as a result average salaries in the City 15

are substantially higher than elsewhere in the 10

nation. The average salary in the securities 5
industry in New York State outside of New York
0
City was $225,560 in 2008, an increase of
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
10.1 percent from the previous year, while the Note: Bonuses are for securities industry jobs located in New York City.
average salary in the rest of the nation declined by Sources: NYS Department of Labor; OSC analysis

1.3 percent to $155,840.

Bonuses
Despite record losses and the sale or failure of
some firms, the Office of the State Comptroller
estimated last January that cash bonuses paid by
the securities industry to its employees working in
New York City totaled $18.4 billion (see
Figure 34). Although the cash bonus pool was
44 percent smaller in 2008 than it was in 2007, it
was still the sixth-largest on record.
With securities industry profits on the rise, the
bonus pool (including deferred compensation) for
employees located in New York City could be
higher than last year based on current
compensation trends. The average bonus could
grow at an even higher rate since there are fewer
jobs than last year. (Johnson Associates, a
compensation consulting company, forecasts that
bonuses at investment and commercial banks will
increase an average of 40 percent, but bonuses at
hedge fund and private equity firms could be up to
Tax Revenues
Wall Street activity has traditionally generated a
disproportionate share of State and City tax
revenue because of high levels of compensation,
profitability, and capital gains. In recent years, tax
revenues from the securities industry grew rapidly
and helped to fill the State and City coffers. (The
industry had accounted for about 20 percent of
State tax revenues and 12 percent of City tax
revenues before the crisis.) The financial crisis
severely curtailed this flow of revenue.
Capital gains realizations, like bonus payments,
had surged to record highs in recent years (see
Figure 35). During Wall Street’s last downturn,
realizations declined by about 70 percent over a
two-year period for both the City and the State. In
the current crisis, realizations are estimated to
have been cut approximately in half in 2008.
Further declines are expected for 2009, although
the State is projecting a much larger reduction
(44 percent) than the City (14 percent).

14 Office of the State Comptroller

 Figure 35 Given these uncertainties, the Office of the State
Capital Gains Realizations Comptroller estimates that for CFY 2010 the
120
decline in tax collections from Wall Street–related
100
New York State activities could range from 5 percent to 20 percent.
A reduction of this magnitude could cut Wall
Billions of Dollars

80

60
Street’s share of City tax revenues by about half.
40 New York State is even more dependent on Wall
Street than New York City is because it relies
20
New York City
more heavily on personal and business taxes. (The
0
City also levies property taxes.) In addition, New
1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008
York State receives tax revenues from the many
Calendar Year
Sources: NYS Department of Taxation and Finance; NYS Division of the Budget; industry employees who commute from the
NYC Office of Management and Budget; OSC analysis
suburbs outside of New York City, and from the
The Office of the State Comptroller estimates that larger statewide pool of capital gains realizations.
between City fiscal years (CFY) 2003 and 2008,
The Office of the State Comptroller estimates that
personal income taxes (including payments from
between State fiscal years (SFY) 2002-2003 and
realized capital gains) and business taxes related to
2007-2008, personal income and business tax
the securities industry have more than tripled to
collections from Wall Street–related activities
$4.7 billion (see Figure 36).4
almost tripled, from $4.2 billion to $13.1 billion
Figure 36
(see Figure 37).
Securities Industry-Related Tax Payments
New York City New York State tax collections from Wall Street–
14

12
related activities declined by only an estimated
$500 million, or 4 percent, in SFY 2008-2009
Billions of Dollars

10

8
because collections benefited from increased
6
capital gains realizations in 2007. The Office of
4
the State Comptroller estimates that the decline in
2 State tax collections from Wall Street–related
0 activities could range from 25 percent to
1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009*

35 percent in the current State fiscal year

City Fiscal Year
* OSC estimate (SFY 2009-2010). A reduction of this magnitude
Notes: Includes revenue from the personal income, general corporation, and unincorporated business
taxes. Personal income taxes include capital gains realizations.
could reduce Wall Street’s share of State tax
Sources: NYS Department of Taxation & Finance; NYC Department of Finance; OSC analysis
revenues from 20 percent two years ago to about
New York City tax collections from Wall Street– 15 percent.
related activities declined by an estimated Figure 37
$1.9 billion, or 40 percent, in CFY 2009. While Securities Industry-Related Tax Payments
New York State
City tax collections are likely to decline further in 14

CFY 2010, the size of the decline could be less 12

than previously projected given the improvement 10

Billion of Dollars

in the financial market, the rising profitability of 8

the financial firms, and lower-than-expected job 6

losses. 4

2
Forecasting tax collections from Wall Street– 0
related activities for CFY 2010 is complicated by
1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009*

the unknown impact of compensation reform, * OSC estimate

State Fiscal Year
which could restrict cash bonuses in the current Notes: Includes the personal income and corporate Article 9A taxes. Personal income taxes include
capital gains realizations.
year, and the amount of business tax credits Sources: NYS Department of Taxation & Finance; OSC analysis

accumulated by financial firms from record losses.

4
Excluding revenue from real property or transaction taxes,
and sales taxes on industry purchases.

Office of the State Comptroller 15

 For additional copies of this report, please visit our Web site at www.osc.state.ny.us or write to us at:
Office of the State Comptroller, New York City Public Information Office
633 Third Avenue, New York, NY 10017
(212) 681-4840
16