ECONOMIC INDICATORS

Wall Street sees biggest return since ’03 as workers suffer

BLOOMBERG FILE PHOTO/JIN LEE
WALL STREET INVESTORS saw the biggest returns since 2003 while employees at the biggest Wall Street banks dealt with job cuts, lower pay and tarnished reputations.
Posted 12/19/12

NEW YORK - For employees at the biggest Wall Street banks, 2012 brought a humbling post-crisis reality of job cuts, lower pay and tarnished reputations. For investors, it was a happier story.

The 81-company Standard & Poor’s 500 Financial Index is up 27 percent this year, its largest annual increase since 2003, led by a 104 percent gain in Bank of America Corp. The index beat the broader S&P 500 Index for the first time since 2006.

Shareholders, impatient for the industry to boost profit, were rewarded as Wall Street firms cut jobs and pay, and exited businesses. The shrinking unnerved employees, who watched the chiefs of two big banks lose their jobs and others contend with a drop in deal making and stock trading, stiffer regulations, trading losses, rating downgrades and scandals involving interest-rate manipulation and money laundering.

“There’s always grumbling on Wall Street, which is pathetic given how overpaid we all are, but there is a level of angst this year that is just unprecedented,” Gordon Dean, who left a 26-year career at Morgan Stanley to co-found a San Francisco boutique advisory firm this year, said in a telephone interview. “It’s just a profound sadness and dissatisfaction.”

Shareholders and bondholders who saw compensation costs at the nine largest global investment banks outpace the gain in revenue from 2004 to 2008 are witnessing a shift: Executives are more focused on investors than rainmakers.

Job cuts

The nine banks -- Deutsche Bank AG, Barclays Plc, JPMorgan Chase & Co., Bank of America, Citigroup Inc., UBS AG, Credit Suisse Group AG, Goldman Sachs Group Inc. and Morgan Stanley -- announced more than 30,000 job cuts in the first nine months of the year, according to data compiled by Bloomberg.

Total pay for traders and investment bankers is about half what it was in 2007, according to an October report from Options Group, a New York-based recruitment firm.

“Shareholders have become a lot more vocal,” said Benjamin Hesse, who manages five financial-stock funds and leads a team of 15 analysts and fund managers at Boston-based Fidelity Investments, which oversaw $1.7 trillion in assets as of Nov. 30. “Managements are taking more shareholder-friendly steps, and that’s really across the board.”

Goldman Sachs cut headcount and raised its dividend in the second quarter, the first time the New York-based bank has done both in the same period. It also named the smallest class of partners since going public in 1999. Morgan Stanley probably will report lower compensation costs in 2012, even as its shares went up, something that hasn’t happened in at least 15 years.

Rewarding investors

Investors have rewarded management teams that presented the most ambitious restructuring efforts.

Citigroup, the third-biggest U.S. bank by assets, climbed 4.8 percent in the two days after its board ousted Chief Executive Officer Vikram Pandit, 55. Earlier this year, shareholders cast a non-binding vote rejecting Pandit’s compensation package. The stock also jumped 6.3 percent when his replacement, Michael Corbat, 52, said the New York-based bank would cut 11,000 jobs.

After Switzerland’s UBS said it would jettison most of its fixed-income business and cut as many as 10,000 jobs, the Zurich-based bank’s stock price climbed above book value for the first time in 15 months. Many of its rivals, including JPMorgan and Goldman Sachs, haven’t traded above that level all year. Book value is an estimate of how much the bank’s assets would be worth minus all of its liabilities.

Next Page
Calendar
PBN Hosted
Events

Two Great Programs...One Great Event. PBN's Annual Celebration of Growth and Innovation is now underway. 2014 applications are now available. Deadline August 1st.
  • Healthiest Employers
    See who the Healthiest Employers in RI are! And save the date - August 14th - at ...
  • 40 Under Forty
    Thank you to our sponsors and to all those who attended the 10th Anniversary of ...
Advertisement
Purchase Data
Book of Lists
Lists
Book of Lists cover
PBN's annual Book of Lists has been an essential resource for the local business community for almost 30 years. The Book of Lists features a wealth of company rankings from a variety of fields and industries, including banking, health care, real estate, law, hospitality, education, not-for-profits, technology and many more.
Data icons
Data can be purchased as single lists, in either Excel or PDF format; the entire database of the published book, in Excel format; or a printed copy of the Book of Lists.
  • Purchase an e-File of a single list
  •  
  • Purchase an e-File of the entire Book of Lists database
  •  
  • Purchase a printed copy of the Book of Lists
  •  
    National
    Local
    Latest News
    Advertisement