Expert Perspective by Grahall’s OmniMedia Editorial Board
So what is going on in Financial Services anyway? One day you read that bankers will get their bonuses early (Newsweek: Banks May Dole Out Bonuses Early). Then things sound grim when on another day the news is about Wall Street bracing for layoffs and lower bonuses (Huffing ton Post: Wall Street Braces For Layoffs And Lower Bonuses). Then still more information comes out about the new banking rules and how they will reduce bank profits and therefore reduce bonuses based on profits (Wall Street Journal: New Bank Rules Good for Everything—Except Bankers’ Bonuses).
So is Wall Street suffering like Main Street or not? There are a couple things at play here. The first and most urgent as far as bank executives are concerned is the possibility that the Bush Era tax cuts will be eliminated in 2011 for individuals who earn more than $250,000. That is the Democrat’s plan, but the mid-term elections will have much to say about that. If they are eliminated that could be costly for executive who receive their bonuses after the close of the calendar year. There is no question that bonuses may be paid early if there is any risk that the tax rates will increase. Ok well that’s cleared up. But what about the claims that banks are on the verge of significant layoffs and lower of bonuses.
As William Alden writes in his October 6th article for the Huffington Post: (Wall Street Braces For Layoffs And Lower Bonuses: “The process has already begun. Bloomberg Businessweek reported last week that Bank of America will cut between 20 and 30 jobs from its proprietary trading desk. JPMorgan has also put employees on notice.” But with these reductions in staff along come reductions in overall payroll and, if the banks are lucky (or least as lucky as other American businesses), increases in profits as a result of these human capital cost reductions. However, it would be unwise to draw the conclusion that a reduction in “revenue devoted to payroll” will mean a reduction in executive bonuses. More likely, it means a meaningful reduction in staff and their related salaries.
Last what about these new bank rules? How will they impact the banker’s compensation? Well certainly if banks are required to “… hold common equity equal to 7% of their total assets, a sharp increase from the current… U.S. requirement for big banks is 4%” according to James Stewart (in his September 15th article for the Wall Street Journal: New Bank Rules Good for Everything—Except Bankers’ Bonuses), then profits and the bonuses based on them will be impacted. But these rules, according to Steve Leisman of CNBC.com “come with a phased in period extending in some cases to 2019 or later.” (US Disputes Talk of Higher Capital for Banks).
So what’s the bottom line? Wall Street and bank executives will take care of themselves.
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