Wall Street's profits plunged by more than 50% year-over-year in the first half of 2022, according to New York state Comptroller Thomas P. DiNapoli in a news release Tuesday about New York City's securities industry.
On a pretax basis, Wall Street reported profits of $13.5 billion in the first six months of the year, a 56.3% drop from the year-earlier period, the news release said.
An accompanying annual report from the state comptroller's office said the number broker-dealers that are New York Stock Exchange member firms has dropped to 126 currently from more than 200 in 2007 (just prior to the global financial meltdown).
The comptroller's office attributed the first-half 2022 results to a number of factors, including "a 47.9% drop in income from firms' trading, underwriting and securities activities, which were at, or near, record levels last year," the news release said. In addition, equity offerings in 2022 were at "the lowest level since 2003, fueled by weaker initial and secondary public offerings." Also, the Federal Reserve's inflation-fighting rate hikes this year "drove interest expenses up $7.5 billion, triple the first half of 2021."
"The last two years of profits and bonuses fueled in part by the extraordinary federal response to the pandemic were not sustainable," Mr. DiNapoli said in the release. "The securities sector was a buffer for state and city revenues during the pandemic. As the sector slows down in 2022, leading firms are reviewing staffing and office space needs and a prolonged downturn could negatively impact state and city coffers."
Mr. DiNapoli added: "Continued support for other sectors that have been slow to recover is needed to speed recovery to their pre-pandemic levels and to help offset the decline in Wall Street-related tax revenues."
Mr. DiNapoli further warned of potential further profit declines in the third and fourth quarters as "challenging market conditions persist."
Noting that the Fed is projected to push up its benchmark interest rate to a range of 4.25% to 4.5% by the end of the year, thereby increasing interest expense liability for financial firms, the comptroller estimated that overall profits in calendar 2022 "may be closer to the 10-year pre-pandemic average of $20.3 billion per year."
Mr. DiNapoli's report also estimated that the securities industry was responsible for $5.4 billion in city tax revenue for the fiscal year ended June 30, amounting to 8% of total tax collections. The securities industry also accounted for $22.9 billion in state tax revenue, or 22% of the total, during New York State's fiscal year ended March 31.
The release also noted that, based on preliminary figures, employment in New York City's securities industry rose to 181,600 through the end of September, having added 1,600 jobs over the first nine months of the year. Still, that overall figure represents a 3.9% decline from 2007.
Moreover, while New York City remains the "capital of the U.S. securities industry," the release noted that the city's share of the overall industry continues to decline. New York City now claims 17.6% of all securities industry jobs, while it was home to one-third of all such jobs in the country in 1990. Also, the city's share of national firms has dropped to 4.4% in 2021 from 6.4% in 2001.
Also, the average compensation for employees in New York City's securities industry in 2021 amounted to $516,560, more than five times the average salary earned by workers in the rest of the private sector. That figure included bonuses averaging $257,500.
However, bonuses are expected to decline by at least 22% in 2022 from their record highs of 2021.
