Wall Street’s 2023 first half profits of $13 billion were down 4.3% from the same period last year but tracked the industry’s return to pre-pandemic levels of revenue after record profits in 2020 and 2021, according to State Comptroller Thomas P. DiNapoli’s annual report on the performance of New York City’s securities industry.
“The securities industry’s two years of record profits helped stabilize New York’s economy in difficult times,” DiNapoli said. “Since then the industry has maintained profits consistent with pre-pandemic levels. But these are volatile times in America and globally, and Wall Street’s relatively stable profits and employment levels could change quickly. Further declines could weaken New York’s tax revenue from the securities industry and have repercussions for our state and city budgets.”
Securities industry performance is traditionally measured by the pretax profits of the broker/dealer operations of New York Stock Exchange (NYSE) member firms. There are now 132 member firms, down from more than 200 in 2007, before the global financial crisis.
In 2022, the city’s securities industry profits of $25.8 billion were a 55.8% drop from the previous year, but they were on par with pre-pandemic performance when annual profits averaged $22.3 billion from 2015 to 2019. That trend continued through the first half of 2023. If the rate of decline in profits in the first half of 2023 holds steady for the rest of the year, annual profits could fall to $24.7 billion, from $25.8 billion in 2022. However, economic uncertainties could cause profits to decline even more in the second half.
As the Federal Reserve has tightened monetary policy to fight inflation, the industry has seen a 46% decline in revenue from commissions and underwriting activities over the past two years, due to the higher cost of credit and a significant fall off in debt and equity issuances and mergers and acquisitions. Financial firms’ interest expenses were seven times higher in 2022 than in 2021.
Market expectations are generally that interest rates will remain elevated for some time, which could further increase borrowing costs and reduce market activity. However, conditions could change rapidly given the uncertainties of the current geopolitical situation, the political turmoil in Washington and changes in inflation and employment.
Employment, Bonuses and Salaries
The 195,100 jobs in the city’s securities industry, averaged through August 2023, are the most in the city in over 20 years and reflect the hiring that took place as profits soared in 2021. The industry fared better than most during the pandemic, losing just 1.6% or 2,900 jobs in 2020, compared to 12.2% overall in the private sector. It remains to be seen if the industry will keep these positions as profits ebb.
Despite losing some of its industry jobs to other states, New York remains far and away the nation’s largest employer in the securities industry. New York state was home to 207,500 securities industry jobs in 2022. By comparison, California had the second highest number of industry jobs at 97,100.
After two years of record highs, bonuses have declined alongside profits. In March, DiNapoli’s office estimated the bonus pool for 2022 was $33.7 billion, 21% smaller than the previous year. It estimated the average bonus for 2022 was 26% smaller at $176,700 and in line with pre-pandemic levels. Bonuses account for an estimated 38% of securities industry wages, more than any other industry in the city.
The average pay for securities industry workers in New York City, including bonuses, was $497,420 in 2022, which was the second highest on record after 2021’s peak of $516,520 ($548,040 when adjusting for inflation). Employees in tech and information services industries have the second highest average salary in the city at $272,410. The average salary in the securities industry in New York State was $473,750, more than twice the average in the rest of the nation ($225,620).
In the first half of 2023, NYSE member firms have increased their compensation expenses by 2.1% over the previous year, which is less than the rate of inflation. It is likely that the overall bonus pool for the year will be smaller than in 2022 as profits decline. Despite an expected decline in the overall average bonus for 2023, the changes will likely vary widely among the various finance subsectors.
DiNapoli is expected to release his annual estimates of the average bonus and bonus pool for New York City securities industry employees in March 2024.
CEO compensation has soared meanwhile, despite declines in profits and average salaries this year and last year, but the jump is likely fueled by incentive packages from high profits during the pandemic. CEOs at New York financial firms took home 328 times the median of all company employees in 2022. In 2021, CEO compensation was 261 times more than the median of all employees at their firms.
DiNapoli’s office estimates Wall Street was responsible for $5.4 billion in city tax collections during its Fiscal Year (CFY) 2023, down 16% from its record high of $6.4 billion in 2022. The majority of the $5.4 billion (74%) came in personal income tax collections, which accounted for 23% of the city’s total personal income tax collections. However, the industry’s overall share of city tax revenue declined from 9.3% in CFY 2022 to 7.5% in CFY 2023, although it was still higher than its pre-pandemic levels. DiNapoli’s report estimates that tax revenue from Wall St. could decline further in CFY 2024 to levels seen in the five years prior to CFY 2021, when it averaged $2.7 billion a year and 6.7% of total tax collections.
In addition to personal income tax collections, the securities industry contributes to city property-related tax revenues as the largest segment of financial services office space tenants in the city. The financial services sector is estimated to occupy approximately 30% of all office space in the city and tends toward the higher-value Class A properties. The office sector accounts for over one-fifth of overall property tax revenues, which are forecast to be $32.6 billion in FY 2024. If the move to hybrid work or cost cutting maneuvers causes financial firms to reduce their office footprints, it could impact city tax revenues significantly.
New York state relies more heavily than the city on tax collections from Wall St. because of its greater dependence on personal income taxes. The industry accounted for $28.8 billion (27.4%) of all tax collections in State Fiscal Year (SFY) 2023, which ended March 31, 2023. About 89% of this came through personal income taxes.
In 2021, the most recent year for which county-level data is available, the securities industry was responsible for 16.4% of New York City’s and 7.3% of the state’s total gross product. The industry has contributed less over time; it was responsible for 18% of all economic activity in 2012. Data for 2022 will likely show a decline in its economic contribution to pre-pandemic levels (14.5% in NYC in 2019), reflecting the drop in firms’ profitability.