Despite Lackluster Year, Wall Street Bonuses Rise

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The New York Sun

Wall Street executives and recruiters say the profits of many trading firms will enable bonus increases of 5%-10% over last year.


In turn, billions of dollars will hit the streets of New York looking for fine food and drink, and really nice cars. Moreover, the increase in compensation comes against the backdrop of the Street’s overall profit decline to $19.5 billion from $24.1 billion last year, according to the Securities Industry Association.


Executives at three New York securities dealers said their firms will notify employees of their bonuses between now and January 1 with payment coming anywhere from late January to early March. Last year, according to an SIA report, Wall Street executives earned 19% of New York City’s adjusted gross income.


Bond and commodity traders can expect to reap 2004’s highest bonuses.


Though the stock market has picked up over the past two months, it has been lackluster for most of the year.


Most sectors of the bond markets, however, were red-hot throughout 2004. Interest rates – which move inversely to bond prices – have been at post-World War II lows.


Commodities desks – the least-lucrative career choice for traders during much of the last decade – have ridden the yearlong increase in oil and gold prices to record profits, causing dealers and hedge funds to add staff in those sectors and dole out bonuses unheard of in those specialties.


“Most senior [bond] traders in the Treasury, agency, mortgage- and asset backed securities desks earned at least $2 million,” said a partner at Goldman Sachs’ fixed income, commodities, and currency department who asked not to be named. Traders on the firm’s oil and gold desks probably did “10%-20% better than that,” he said.


This is the third straight year of compensation increases for bond traders and bond-sales executives, according to Horizon Group partner Tom Angello, a veteran recruiter with a practice in fixed-income.


“Bond traders and salesmen probably will do 5%-10% better, but that’s coming off two years of at least 10%- 20% gains,” said Mr. Angello, declining to give examples.


A senior bond executive at Bear Stearns said that the bonuses given to the company’s managing directors – who all earn a base salary of $200,000 annually – will probably average between $300,000-$800,000. The bonuses given to senior managing directors – equivalent to a managing director at most other firms – will average between $800,000 and $4.8 million, he said. In fixed-income trading and sales – long Bear Stearns’s specialty – the compensation levels will be at the high-end of that range, he said. The executive said Bear Stearns’s bonuses will probably be about 10% higher than most of the rest of Wall Street.


Moreover, with HSBC, Deutsche Bank, and Barclays Capital continuing to expand their bond divisions, bond traders, especially mortgage- and asset backed traders, should continue to remain highly sought after for the foreseeable future. In early June, both HSBC and Barclays entered the mortgage trading arena by hiring senior traders from Lehman and Citigroup for up to $5 million annually, considered record compensation in those areas. In turn, rivals have had to increase compensation to keep their staff from being poached. HSBC and Barclays Capital have added dozens of people to their departments since then and are continuing to add staff, said traders and salesmen who have approached by the firms.


Last year, $11 billion in Wall Street bonuses were paid out, according to a report from the New York State comptrollers office, but the report does not take into account the rapid expansion of New York City’s hedge funds. As a result, the comptroller’s figure may be as much as 50% too low.


A spokeswoman for the hedge fund trade group the Managed Funds Association, Meg Bode, estimated there are around 100 funds in Manhattan. Based on publicly available returns, New York City-based hedge funds probably paid out more than $6 billion in bonuses in 2004.


Meanwhile, investment bankers can expect to see 25% increases, a compensation survey by Wall Street recruiters Johnson Associates found. The report noted, however, that the boost was coming off of 2003, the worst year for stock issuance in nearly a decade. It said a senior investment banker – with a $200,000 base salary – might expect to see a bonus of up to $700,000. Last year, this bonus would likely have been around $550,000, the report said.


All this money being paid out has apparently made Wall Street thirsty. The chairman of Madison Avenue wine-seller Sherry-Lehmann, Michael Aaron, said sales are almost 8% better than last year’s record pace and were being driven by Wall Street pros flush with cash. An example of this thirst is the sale of three cases of 1982 Petrus – which he described as one of the most sought after winemakers – for $36,000 a case. Coming back from the stratosphere, Street pros have been buying Veuve Cliquot champagne at $170 a bottle, he said. Going into New Year’s, Mr. Aaron said, one of the most popular wines among financial professionals has been “higher-priced” California reds – especially Merlot – for between $60 and $150 a bottle.


Getting out of the city in style is also proving to be a priority for many on Wall Street. Manhattan Motorcars President Brian Miller told a trade publication that his 11th Avenue luxury car dealership is on pace to sell 50 Rolls-Royces this year, up from his original target of 20-30. Rolls sell for between $220,000-$360,000 each.


The New York Sun

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