With Bonuses Slashed, Wall Street Is In Crisis

Wall Street bonusesWall Street is facing a crisis even worse than the financial meltdown of 2008, reports New York magazine in a sweeping cover story. As pieces of the Dodd-Frank financial-reform act come into effect, revenues are plummeting, bonuses are getting slashed, and firms are selling off chunks of office space.

"If you're a smart Ph.D. from MIT, you'd never go to Wall Street now," a hedge-fund executive told journalist Gabriel Sherman. "You'd go to Silicon Valley. There's at least a prospect for a huge gain. You'd have the potential to be the next Mark Zuckerberg. It looks like he has a lot more fun."

During bonus season, Wall Street heavyweights could expect seven- and eight-figure rewards. But Morgan Stanley capped its cash bonuses at $125,000. Bank of America trimmed its compensation by a quarter and set $150,000 limits on some cash bonuses. "It's a bloodbath," one mid-level Goldman Sachs employee told CNBC about bonus day. "One girl was actually crying, I think," said another. After final quarter profits in 2011 fell by 58 percent from the same time last year, the firm shaved wages and bonuses down 21 percent.

The firms are cutting costs in other areas too; as The Wall Street Journal reports, financial institutions are subleasing or selling off over 2½ million square feet of space. Bank of America may sell off every inch of its office space, keeping only its headquarters in New York City and North Carolina.

It's not just a temporary belt-tightening, according to Sherman, who interviewed over two dozen financial players for the piece. While the slow recovery, the financial crisis in Europe, and the tsunami in Japan have all had an effect, there are bigger and longer-lasting shifts underfoot.

The controversial Dodd-Frank act, which is gradually coming into effect, touches every single aspect of the financial services industry. Most significantly, banks will no longer be able, for the most part, to conduct proprietary trading and hedge-fund investing. They have to keep a lot more money on hand too, and can no longer leverage at the 30- or 40-to-1 ratios that were commonplace at the peak of the credit boom.

Last year, trading and mergers slowed as a result, and financial stocks were the limpest performers in the Standard & Poor's 500 Index. As Sherman writes, "there has been a growing recognition on Wall Street that the system that had provided those million-dollar bonuses was built on a highly unstable foundation."

In recent years, finance has been able to grab top talent from the nation's top schools. But it seems the public vilification of the financial sector, led by Occupy Wall Street and outspoken politicians, has infiltrated campuses. 25 percent of Yale graduates go into finance or consulting after college, but the Yale students that attended a Morgan Stanley information session last November were greeted by 50 of their classmates, chanting phrases like "Give change a chance, don't go into finance," and "We've got talent, we've got smarts, but our careers are moved by our hearts."

It's unclear if fewer graduates are seeking work in the financial sector, but there are certainly fewer jobs for them. Last year, the global financial services sector announced 200,000 layoffs.

"Wall Street did a really good job convincing people it was really complicated," a former Lehman trader told Sherman, "and they were the only ones who could do it and it justified paying them millions of dollars." These days, Wall Street may not even be able to convince itself.



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zewei

Gosh, I really cry for these guys!

March 14 2012 at 6:25 PM Report abuse rate up rate down Reply
Saint's Patience

is this..

..is this a Satire?

this has to be.
i did not know that individuals who earn 6-digit salaries, plus what appear to consistently be 6-digit bonuses, may consider themselves Indigent.

February 11 2012 at 5:41 PM Report abuse rate up rate down Reply
mountaindelivery

we all need to borrow more money
that will solve the problem

February 07 2012 at 5:26 PM Report abuse rate up rate down Reply
charles000

"bonuses are getting slashed, and firms are selling off chunks of office space" . . .

Oh my god . . . the humanity . . .

Please, forgive me while I get some tissues

February 07 2012 at 9:43 AM Report abuse rate up rate down Reply
Trish Lambert

Morgan Stanley capped its cash bonuses at $125,000. Bank of America trimmed its compensation by a quarter and set $150,000 limits on some cash bonuses. "It's a bloodbath," Please, may I have a bloodbath?

February 07 2012 at 8:52 AM Report abuse +1 rate up rate down Reply
tren555

wall steet can go to hell. There is no need for such a casino. Has nothing to do with investing anymore.
Now everybody gets a direct contact.
Just some oldies have money in wall street casinos. Remember 401k plans ?
They are junk /

February 07 2012 at 7:17 AM Report abuse +3 rate up rate down Reply
charles000

"bonuses are getting slashed, and firms are selling off chunks of office space" . . .

Oh my god . . . the humanity . . .

Please, forgive me while I get some tissues . . . the tears just keep falling from my eyes . . .

February 07 2012 at 6:57 AM Report abuse +3 rate up rate down Reply
fritz4bass

Anyone with half a brain had to know that it was inevitable the bubble was going to burst in the financial sector due to the unscrupulously sanctioned illegal behavior in which Wall Street's conducted itself. To cry about it now, due to the loss of the opportunity to capitalize off of Wall Street's flagrant abuse of other people's money, hopefully will fall upon deft ears: the gravy train is over. The sophisticated contrivances designed to rip people off of their hard earned savings and investments is hopefully being reigned in once again: this has happened before.

February 07 2012 at 6:33 AM Report abuse +3 rate up rate down Reply
mckinnoninc

too bad so sad

February 07 2012 at 6:12 AM Report abuse +1 rate up rate down Reply
chucksterg

The smartest and brighest need to be going other places besides wall street

February 07 2012 at 6:10 AM Report abuse +2 rate up rate down Reply

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