Though Wall Street recorded $10.1 billion in profits for the first half of 2013, New York’s comptroller said Tuesday that federal budget dithering, higher interest rates and litigation may slow earnings for the last half in a securities industry that’s kept trimming jobs.
In a report, Comptroller Thomas DiNapoli projected that overall earnings will be limited to $15 billion this year, compared with $23.9 billion last year, but still part of the rebound from the 2008 crash of the financial markets and the national recession. “Five years after the bankruptcy of Lehman Brothers, Wall Street has made an impressive comeback,” the report said.
“The political gridlock in Washington may take a bite out of the security industry’s profits for the fourth quarter,” DiNapoli said. “Washington’s inability to resolve budget and fiscal issues is bad for business.”
The 16-day partial federal government shutdown ended last week, but a possible repeat may be on the horizon. Lawmakers approved a budget that keeps the lights on through Jan. 15 and lets the Treasury Department continue to pay its bills through Feb. 7.
A standoff between President Barack Obama and a group of Republicans over spending for the budget year beginning Oct. 1 and possible defunding of the nation’s health care overhaul led to the shutdown. Lawmakers also pushed the country to the edge of economic default by threatening the Treasury Department’s authority to continue borrowing the money needed to pay the nation’s bills.
The annual comptroller’s report said there were 163,400 total jobs on Wall Street in August, down from 168,700 a year earlier. However, New York’s financial sector still had 2.5 times more jobs than No. 2 California, and they pay an average $360,700 salary, or about five times more than the rest of New York City’s private sector.
“While the jobs are more limited than in the past, it’s great work if you can get it,” DiNapoli said. The report noted 13.5 percent fewer securities jobs than before the financial crisis. New York City has about 20 percent of the total securities employment nationwide, holding steady since the 2001 terrorist attacks in Manhattan and down from 30 percent a decade earlier, the report said.
DiNapoli predicted the industry would continue to streamline in adapting to changing regulatory and economic circumstances.
“Higher interest rates are hurting profits. Third-quarter results for a number of large financial firms show the jumps in interest rates over the summer have hurt fixed-income operations,” DiNapoli said. “Another area that has an impact — settlements and fines from litigation stemming from the financial crisis are costing the industry billions of dollars.”
The report noted that only about 40 percent of the regulations under the Dodd-Frank Wall Street Reform and Consumer Protection Act passed three years ago have been implemented, but it said some investment banks have begun changing business practices from existing rules and in anticipation of new ones, like increasing capital reserves and shedding ownership stakes in hedge funds.
The report noted that unlike previous economic recoveries in New York City, the current rebound is driven by other industries that have added 335,000 jobs, more than double the total lost in the recession, with an average salary of $69,200.
The securities industry remained one of the city’s main economic engines, last year accounting for 5.1 percent of its jobs but nearly 22 percent of all private sector wages.