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Wall Street cash bonuses for 2011 were forecast to fall 14 percent to $19.7 billion US, the lowest in three years, and securities firms shed thousands of jobs as stiffer regulations took a toll on profits, New York State's comptroller said Wednesday.
"The securities industry, which is a critical component of the economies of New York City and New York State, faces continued challenges as it works through the fallout from the financial crisis and adjusts to regulatory reforms," Comptroller Thomas DiNapoli said.
The industry, which still has not recovered fully from the 2008 financial crisis, is expected to cut the average cash bonus by 13 percent to $121,150, DiNapoli said in an annual report.
That's the lowest since 2008, when the crisis cut Wall Street profits by 43 percent and the average bonus was just shy of $101,000.
Wall Street's big profits and high compensation became focal points of the Occupy Wall Street movement last year, which stirred up national debate about wealth distribution and taxes.
STREETS SHEDS 4,300 JOBS, MORE LAYOFFS EXPECTED
The securities industry began 2011 strongly, earning $12.6 billion in the first half, DiNapoli said. But the sector lost $3 billion in the third quarter.
DiNapoli said profits of broker/dealer units fell sharply in 2011 and will not exceed $13.5 billion, less than half 2010's tally of $27.6 billion. It was the second year in a row that profits fell by more than half.
"This is fallout from the financial crisis and anticipation of continued changes in regulatory reform as a response to that crisis," DiNapoli said in an interview with MSNBC.
The securities industry posted record profits in 2009, hitting $61.4 billion, a total that was boosted by federal assistance, but lost a record total of $53.9 billion over 2007 and 2008.
Layoffs resumed last year, with Wall Street cutting 4,300 jobs between April and December, the comptroller said.
During the financial crisis, the industry shed 28,000 workers and only 9,600 had been hired when the new round of pink slips began last spring.
By the end of 2012, the comptroller projects about 10,000 industry jobs will disappear.
Even in a down year, DiNapoli said the average salary for a securities industry worker rose 16 percent to $361,180 in 2010, according to the latest data available.
The figure, which includes cash bonuses, was 5.5 times higher than the average salary of $66,110 in the rest of New York City's private sector, he said.
DiNapoli said trouble for Wall Street could mean trouble for the regional economy.
"Certainly as a New Yorker, whether you love them or hate them, we need Wall Street to be profitable," he said.
But he added that more regulatory oversight will force firms to reduce risk and lead to more predictable and sustainable profits, which will be good for the New York and U.S. economies.
Banks worry that the Dodd-Frank financial reform law, which includes restrictions on how banks can trade, will reduce profitability.
Some of the 2011 bonus pool likely comprised deferred compensation from previous years, DiNapoli said, a trend that will probably continue in the years ahead.
That's good news for New York State and New York City revenues, he said, as it should "reduce volatility in industry tax payments."
About 14 percent of New York State tax revenues came from Wall Street in 2010, down from 20 percent before the crisis, while New York City's tax take fell from 13 percent to less than 7 percent.