Here's the full story from Crain's NY --
Bigger bonuses expected even as stocks fall
Record pay fuels Wall St. sprees
by Jon Birger
Investors may be fretting over falling stock prices, but the biggest concern for investment bankers these days could be whether to buy beachfront in the Hamptons or lakefront in the Adirondacks.
With the securities industry enjoying record earnings, Wall Street bonuses this year are likely to be the biggest ever.
"The general public is going to be stunned by the amount of money people on Wall Street will make," says Alan Johnson, a Manhattan compensation consultant who advises many of the top securities firms.
Barring a total market meltdown, year-end bonuses are expected to rise an average of 25% to 30%. At least 2,000 people on Wall Street will earn $1 million or more in 1999, up from just over 1,000 last year, Mr. Johnson predicts. As many as 75 executives will make more than $10 million, quadruple the number who earned eight figures in 1998.
"Expectations are very high," says Gary Goldstein, president of executive search firm The Whitney Group.
Because the bulk of the money made by brokers, investment bankers and traders is paid to them in the form of year-end bonuses, a 25% increase in a bonus is a major boost in compensation. It will be another three months before checks are actually cut, but the mere prospect of record payouts is already having an impact upon the residential real estate market.
"It's borderline frenetic, people are feeling so flush," says Richard Wallgren, a real estate broker with Stribling & Associates.
Mr. Wallgren has been selling multimillion-dollar condominiums in a luxury high-rise currently being built on Beach Street, across from Salomon Smith Barney's Manhattan headquarters. "Half the units are sold, and we're a year from completion," he says.
The story is much the same in the Hamptons, where demand for summer homes is unprecedented. "People might say they're worried about the stock market," says Diane Saatchi, president of Dayton-Halstead Real Estate in East Hampton, "but usually that's just a negotiating tactic."
Caterers and party organizers are also basking in Wall Street's glow. The holiday parties being planned by the big investment banks will be some of the most lavish seen on Wall Street since the mid-1980s.
"I'm doing some absolutely incredible events," says Jennifer Gilbert, president of Manhattan party planner Save The Date.
Hiring Tony n' Tina
One firm gave her the go-ahead to hire the cast and crew from the popular off-Broadway show Tony n' Tina's Wedding to provide entertainment at its holiday bash. Another is renting out the Whale Room at the American Museum of Natural History and has ordered custom-made serving trays adorned with aquatic designs just for the event.
"Budget is definitely not an issue," says Ms. Gilbert, noting that her clients will spend as much as $300,000 to be feted in style.
Of course, a damper could be put on the festivities if the stock market's recent woes develop into a full-fledged correction-an all-too-familiar scenario. After a great first half in 1998, stock and bond underwriting ground to a virtual halt in September and October, dashing the hopes of bankers and traders who were anticipating enormous paydays. Average year-end bonuses declined 15% to 20% from 1997, and Wall Street professionals in hard-hit areas like emerging markets saw their compensation decline by 50% or more.
With Asia and Latin America recovering slowly from last year's credit crunch, emerging markets professionals could get the short end of the check once again. Other tough-luck businesses where bonuses may be down include high-yield bonds-a victim of rising interest rates-and foreign exchange, which suffered a decline in trading volume due to the introduction of the euro.
Otherwise, 1999 has been an across-the-board strong year for the biggest Wall Street firms. During the nine-month period ended Aug. 31, Goldman Sachs Group Inc. recorded net income of $1.8 billion, up 42% from the same period last year. Lehman Brothers Holdings Inc. earned $745 million, up 27%, while Morgan Stanley Dean Witter & Co. grew its earnings by 56% to $3.1 billion.
Setting records
"Investment banking has set all kinds of records this year," says Raphael Soifer, a securities industry analyst with Brown Brothers Harriman & Co.
Initial public offerings are up 50% to $36.5 billion in total volume, according to Thomson Financial Securities Data, and scores of Internet IPOs are in the pipeline for October and November. The merger-and-acquisition business is also on a record pace, with $2.1 trillion in worldwide deals announced so far this year, versus $1.9 trillion during the same period last year.
"Investment bankers have already closed so much business this year, the rest of the year is just gravy," says recruiter Brian O'Callaghan, president of Career Partners Inc.
Not surprisingly, M&A bankers are expected to take home some of the fattest bonus checks. The Whitney Group's Mr. Goldstein expects managing directors in major Wall Street M&A departments to make anywhere from $1.5 million to $4 million this year. Equity analysts and investment bankers who deal with technology stocks should do equally well.
It's not just star investment bankers who will be having happy holidays. Brokerage houses have been offering six- and seven-figure signing bonuses to veteran stockbrokers willing to switch firms. Young associates just a few years out of business school are also expected to get substantial raises, with some receiving bonuses of $250,000 or more.
In an interesting twist of fate, the very Internet companies Wall Street helped take public are now using their stock and options to lure away investment banks' top young talent -thus forcing the Street to raise its pay scales.
"Investment banks are suddenly finding they are no longer the first choice for the best and the brightest," says Joan Zimmerman, a recruiter with search firm GZ Stephens Inc. |
