Wall Street Pay to Hit New High

Despite the stall-out in the recovery and the decline in median wages, Wall Street executives look set for record pay-outs this year. The Wall Street Journal reports:

About three dozen of the top publicly held securities and investment-services firms — which include banks, investment banks, hedge funds, money-management firms and securities exchanges — are set to pay $144 billion in compensation and benefits this year, a 4 percent increase from the $139 billion paid out in 2009, according to the survey. Compensation was expected to rise at 26 of the 35 firms.

The data showed that revenue was expected to rise at 29 of the 35 firms surveyed, but at a slower pace than pay. Wall Street revenue is expected to rise 3 percent, to $448 billion from $433 billion, despite a slowdown in some high-profile activities like stock and bond trading.

Overall, Wall Street is expected to pay 32.1 percent of its revenue to employees, the same as last year, but below the 36 percent in 2007. Profits, which were depressed by losses in the past two years, have bounced back from the 2008 crisis. But the estimated 2010 profit of $61.3 billion for the firms surveyed still falls about 20 percent short from the record $82 billion in 2006. Over that same period, compensation across the firms in the survey increased 23 percent.

How are the banks making so much, despite the crummy economy? For one, reduced competition. Hundreds of hedge funds and a number of banks died between 2007 and 2009, leaving the others to pick up their business. Additionally, the carry trade. It is unbelievably cheap for big banks to borrow from the government, and they are picking up money on the margin when they lend it out. Moreover, big banks haven’t yet reckoned with the foreclosure fraud crisis. Nobody knows how much that will cost them, but some are estimating in the billions.