Wall Street's wild windfall
Wall Street's wild windfall
Earnings help NYC cut estimated deficit as brokerages' $36B in bonuses prime pump for luxury-goods sales
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BLOOMBERG NEWS
November 7, 2006
Never in the history of Wall Street have so many earned so much in so little time.
Goldman Sachs Group Inc., Morgan Stanley, Merrill Lynch & Co., Lehman Brothers Holdings Inc. and Bear Stearns Cos. are about to reward their 173,000 employees with $36 billion in bonuses. That's a 30 percent increase from last year's record, and it doesn't include the billions more that will be paid by Citigroup Inc., Bank of America Corp. and JPMorgan Chase & Co., the three largest U.S. banks, as well as the hundreds of hedge funds and private-equity firms that constitute the financial industry.
Enriched by the unprecedented value of takeovers, equity trading and credit derivatives, "this year will be the best ever for the major brokerage firms," said Brad Hintz, an analyst at Manhattan-based Sanford C. Bernstein & Co.
The average windfall for each individual at the five largest U.S. securities firms will be enough to buy a $165,000 Bentley Continental GT, the two-door coupe favored by Paris Hilton and Cher. They'll have plenty of change for a box of Romeo y Julieta cigars and a case of Pol Roger champagne - the stuff enjoyed by Winston Churchill, Britain's prime minister in the 1940s and 1950s.
Credit-default swap specialists, who speculate on companies' ability to repay debt, won't be the only winners this year.
New York City cut the estimate for its budget deficit by 87 percent last week, in part because of the investment banks' better-than-expected earnings. The state comptroller's office said Oct. 17 that tax receipts from the financial industry's wages will rise 14 percent, to $2.4 billion in fiscal 2006.
Dolly Lenz, Manhattan's doyenne of high-end properties, is timing some of her best listings to coincide with bonus season. Ever since the 1970s, the UJA-Federation of New York has held its annual bankers' fundraiser on the first Wednesday in December, the date when Bear Stearns told employees what their bonuses would be.
"When Wall Street does well, we do well," said Richard Koppelman, owner of Greenwich, Conn.-based Miller Motorcars. Koppelman is readying a $150,000 red 2005 Ferrari 360 Modena F1 convertible for a customer who will be getting his first bonus since graduating two years ago from business school.
Leveraged-buyout firms attracted more than $170 billion in new money this year, helping to drive $2.9 trillion in takeovers and a surge in loans, according to data compiled by Bloomberg and London-based Private Equity Intelligence Ltd. More than $110 billion poured into hedge funds in the first nine months, beating the last annual peak in 2002 and fueling demand for stocks, bonds, commodities and derivatives, which are used to hedge risks and for speculation.
Combined, Goldman, Morgan Stanley, Merrill, Lehman and Bear Stearns earned $21.3billion in the first nine months of 2006, surpassing 2005's full-year record of $20.4 billion.
Year-end rewards at top-5 firms
The following table shows the calculations for total and average bonuses for each of the five biggest U.S. securities firms, based on estimated revenue, compensation and benefits, and number of employees.
Firm Total Total Bonus Average Average
revenue* compen pool* Employees Compensation Bonus
sation*
Goldman $35.7 $16.9 $10.2 25,647 $658,946 $397,707
Morgan $33.6 $14.0 $8.4 54,349 $257,594 $154,556
Merrill $32.5 $16.1 $9.7 55,300 $291,139 $174,683
Lehman $17.4 $8.7 $5.2 24,775 $351,160 $210,696
Bear $9.0 $4.4 $2.6 13,000 $338,462 $203,077
*(in billions)
How the figures were calculated:Total revenue: Average estimate of analysts surveyed by Thomson Financial.
Total compensation: Estimated revenue multiplied by the average ratio of compensation to revenue.
Bonus pool: 60 percent of estimated total compensation.
Employees: Total number of full-time employees reported at the end of the third quarter.
Average compensation: Estimated compensation divided by total number of employees.
Average bonus: Estimated bonus pool divided by total employees.
SOURCE: BLOOMBERG NEWS
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