Saturday, August 25, 2007

Bonuses on Wall Street Threatened by Credit Crunch

Aug. 22 (Bloomberg) -- The credit-market freeze that's paralyzing leveraged buyouts, mergers and myriad computer-driven trading strategies may cut Wall Street bonuses for the first time in five years.

"There's a lot of pessimism out there,'' said Gary Goldstein, chief executive officer of executive-search firm Whitney Group in New York. "Looking at the world today as we see it and the impact the crunch is likely to have, it looks like bonus pools will decline.''

Bonuses, the financial industry's annual rite of compensation typically calculated as a multiple of salary, probably will decline as much as 5 percent from 2006, according to Options Group, the New York-based firm that has tracked pay and hiring trends for more than a decade. While the payouts often far exceeded the average of $220,650 at the biggest U.S. securities firms last year and increased as much as 20 percent from 2005, the subprime-mortgage collapse already has drained the punch bowl.

Hardest hit will be employees who create and sell securities backed by mortgages or pools of debt, Options Group said. One out of every three people in those roles may lose their jobs unless business picks up by the end of the year, the firm estimates.

Bonuses may fall as much as 40 percent.


Blogger Akubi said...

Poor guys. I really feel their pain.

Aug 25, 2007, 5:25:00 PM  
Blogger Lisa said...

Bonuses? I'm waiting for the layoffs.

And BTW, Wall Street bonuses are supposedly what's kept Manhattan real estate "so special." So what happens when that big check at the end of the year doesn't come?

Aug 25, 2007, 6:08:00 PM  
Blogger Marinite said...

And such bonuses are what's supposedly kept South Marin so "special" too. Hence, the post.

Aug 25, 2007, 6:35:00 PM  
Blogger marine_explorer said...

Hmm...seems they were agog over this liquidity fiasco--until it reversed direction.

Somewhere, a crocodile has shed a tear.

Aug 25, 2007, 7:19:00 PM  
Blogger Unknown said...

How bad is the credit crunch situation? According to Peter Evais' article on FORTUNE on-line magazine that Fed has bent rules to help two big banks:

"The Aug. 20 letters from the Fed to Citigroup and Bank of America state that the Fed, which regulates large parts of the U.S. financial system, has agreed to exempt both banks from rules that effectively limit the amount of lending that their federally-insured banks can do with their brokerage affiliates. The exemption, which is temporary, means, for example, that Citigroup's Citibank entity can substantially increase funding to Citigroup Global Markets, its brokerage subsidiary."

Aug 25, 2007, 9:10:00 PM  
Blogger Matthew said...

NY City will have it's day as well... It, along with SF, will be the last to go, but both will go, make no mistake about that...

There will be more than lost bonuses dolled out after this thing finishes unwinding. Those bonuses and our consumption based economy is based on ever more and more levels of debt being carried by the average Joe.

Well, as Wall Street is starting to see clearly now, Joe's legs are wobbling, and, as incredibly painful as this will be to the Wall Street thugs, he's also starting to see the huge predicament that he's in with a huge ass load to carry and a loooooooong ass hill in front of him with no rest areas along the way to stop. That predicatment was coutesy, of course, of Sir Allen and his Wall Street banking buds/thugs.

Well, many of those the Joe's are dumping their loads left and right in order to survive and leaving those loads to the bankers to figure out what to do next. They'll snooker a few more Joe's into picking up the load, but most of them will be left holding the bag and will have to eat part of that load before suckering in another Joe to take it to the top.

It will be cat and mouse for a while with occassional signs that the average Joe's out there in the US are stronger than any of Joe's before them, but that falsehood too will come crashing down. A Joe is a Joe and Joe's can only carry so much debt before they collapse. So sorry Wall Street and Benny B... that's just a fact..

Aug 26, 2007, 8:20:00 AM  
Blogger brazos605 said...

Today, the "average Joe" with the huge amount of debt also does not have the escape hatch of personal bankruptcy. The federal bankruptcy laws were dramatically changed a few years ago to make it very difficult to have your debts discharged in bankruptcy via liquidation (Chapter 7). Lenders fought for this for years, and finally got it.

I think that may mean there will be more foreclosures than there would have been had the bankruptcy laws not been amended, although it may be less of a factor here than it is in states like Texas and Florida, where there is no cap on the homestead exemption. Before, when financially pressed, people could file for bankruptcy and cancel out their credit card debt with relative ease, and keep their homes, as long as they kept up their mortgage payments. In fact, I think that was a huge reason behind the press to give people home equity loans. It turned unsecured debt to secured debt in the form of a mortgage so it could not be evaded via bankruptcy. Since it's so difficult now to avoid credit card debt via bankruptcy, foreclosure is one step closer for a lot of people. The irony is that in their desire to turn all unsecured debt into secured debt, lenders indirectly cut their own throats by hastening the crash we're now experiencing.

Just some off-the-cuff thoughts.

Aug 26, 2007, 10:28:00 AM  
Blogger Marinite said...

The irony is that the bankruptcy laws sort of force people to take debt seriously, to consider it a bad thing; like we used to. Which of course is a good thing. But unfortunately Joe wasn't paying usual.

Aug 26, 2007, 11:36:00 AM  

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