Ground Floor: Last week I mentioned that traders would be thinking about their year end bonuses and it now seems that as far as the Wall Street guys are concerned, it's shaping up to be a very good year. The estimated payout to the top 150,000 traders is being touted as around $17.5 billion (€14.4 billion), and the retail industry is hoping to take a large chunk of that cash in exchange for luxury goods.
The total pretax profit estimates for Wall Street firms are approximately $21 billion, which would make it the fourth best year ever for the street. (The best year was 2000, before it all went wrong. Bonuses then were $19.4 billion. In 2002, they were $7.9 billion. In 2004, they hit $15.9 billion.)
The announcements are generally made in December, but the big firms have been giving out their third-quarter earnings numbers, and profits are expected to be up nearly 9 per cent on last year. Goldman Sachs posted an 84 per cent rise in earnings in the third quarter and, according to Dow Jones, has set up a bonus pool of $9.2 billion, which would average out at $420,000 per worker. It looks like the mergers and acquisitions people will be at the front of the queue this year, beating back the derivatives and commodities specialists of 2004.
After a year of grim news stories like Refco and weather-related disasters, Americans are ready to embrace the re-emergence of the dream. Wall Street bonuses are trickle-down economics in action. Everyone wants the opportunity to pitch for a share of the cash and they're gearing up for it now. The Wall Street Letter website, www.wallstreet letter.com , has put up a survey asking traders how they're going to spend the money. The options are: (a) Bahamas, babes, booze (b) Hummer, private schools, second home (c) Chanel, Manolos, St Tropez (d) Lamborghini Gallardo, penthouse, Armani.
Whether it's because Wall Street traders have recently been infused with political correctness (something I find hard to believe) or whether it's simply a change in priorities, option A had received no votes at all when I last checked.
Half of the traders were opting to buy the Hummer and the second home and send their offspring to private schools. A third chose Chanel, Manolos and St Tropez, which is surely a positive sign since this option is clearly aimed at the female traders and it's nice to see that there are more of them around.
The remainder were opting for the Lamborghini, the penthouse and Armani. Apparently the Lamborghini, at $200,000, is the car of the year as far as the hotshot traders are concerned. Clearly the Hummer and Lamborghini buyers have taken the view that weather-related disasters and petrol-guzzling vehicles have absolutely nothing to do with each other. And, given the amount of money they're set to stash in their accounts, petrol prices at double last year's levels won't worry them either.
Most of the Hummer orders are apparently for the H1, which is the military spec model and starts at around $130,000. Just the thing for the private school run!
Event planners are hoping for a bit of celebratory expenditure too. Professional wedding planner, Tatiana Byron, president of 4PM Events - which posted revenues of $1.3 million in 2004 - has gone for the singletons market, having arranged for a yacht-hiring Wall Streeter to take a gang of friends on a Caribbean golf and cruise break at a cost of around $200,000.
Tatiana (33) is an American success story. Having come to the US as a six-year-old, she graduated from Boston University before setting up her own company. Female traders thinking of nipping up the aisle may consider splashing the bonus money on Byron's speciality $500,000 wedding.
All these stories of extravagant spending only spur on the rest of the Wall Street gang to do better next year so that they will be the ones with the petrol-hungry cars, the expensive yachts and the lavish parties in the future.
It's not quite as good a year for the shareholders, however. After all, Goldman's shares might be up 13 per cent, which equals the Amex broker/dealer index return, but Merrill Lynch underperformed the index and Morgan Stanley's returns are in negative territory. The financial giant JP Morgan actually posted a 13 per cent decline for the year. Sometimes I think that financial markets inhabit a parallel universe, where the size of the bonuses are actually more important than the shareholders' returns - or where the shareholders simply know that they have to hold on for the big takeover to see the big bucks themselves.
But the city of New York is happy to see the traders flush with cash because taxes on bonuses bring in a huge amount of revenue to the town. According to the Securities Industry Association, their members account for just under a fifth of the pay of all New York residents. There's a projected $4.5 billion shortfall in the New York budget, so the tax take from wealthy traders will help the balancing act.
I miss bonus time. I miss the anticipation of an extra percentage in the year-end pay packet, even though I was never the recipient of the lottery-like sums dispensed on Wall Street. My first bonus, received back in the more staid days of the late 1970s, was merely enough to blow on a stylish set of cutlery. Hardly up there with a Hummer and a Lamborghini, but it was cutting edge at the time
www.sheilaoflanagan.net
