By Lananh Nguyen and Niket Nishant
NEW YORK (Reuters) -Wall Street bonuses in 2022 are expected to fall 22% or more from last year's bumper payouts, according to a report from New York State Comptroller Thomas DiNapoli, as tough economic conditions choked off demand for deals.
Inflation, the war in Ukraine and rising interest rates have weighed on the economic outlook. Across Wall Street, investment-banking fees plunged from their 2021 records as the markets for mergers, acquisitions and initial public offerings dried up.
The pessimistic outlook contrasts with a bonanza for bankers last year. Average compensation rose to $516,560 a year for the securities industry workers in New York City in 2021, up from $438,450 in 2020, DiNapoli said in a statement on Tuesday. That was more than five times the average private-sector salary and included average bonuses of $257,500 last year for securities industry's employees.
"The last two years of profits and bonuses fueled in part by the extraordinary federal response to the pandemic were not sustainable," DiNapoli said. "As the sector slows down in 2022, leading firms are reviewing staffing and office space needs and a prolonged downturn could negatively impact state and city coffers."
Financiers can expect leaner times this year. Wall Street firms have set aside 6.5% less for compensation in the first half of 2022 as pretax profits halved to $13.5 billion, DiNapoli said. Pretax earnings have dropped 56% from $31 billion earned in the same period last year.
In 2021, the industry handed out the biggest bonuses to employees since 2006 as the economy roared back from the pandemic.
Wall Street workers remain an important force in New York City, accounting for 16% of its economic activity. In 2020, one in 11 jobs in the city was linked to the securities industry, though that had fallen from one in nine in 2019. The drop probably came from fewer workers reporting to offices, which meant fewer customers for restaurants, stores, arts and entertainment venues.
The securities industry added 1,600 jobs through September for a total of 181,600 workers. Employment fell 1.9% in 2020 and 2021 in the financial industry, compared with a 9.8% decline in the broader private sector. Despite the darkening economic outlook, some major U.S. banks have added staff this year, according to their third quarter earnings.
It was a "surprise" to see that banks were adding a few jobs in recent months, DiNapoli told reporters on a conference call. "We can see that trend going in the opposite direction, but it's too soon to tell right now."
The comptroller's annual report on 2022 Wall Street bonuses will be released in March.