[NEW YORK] Ask Main Street about Wall Street and you probably won't hear this: Banker pay is surprisingly low. But that's what financial professionals say.
Asked whether they earn more or less than they expected when they decided to pursue a finance career, 48 per cent of respondents in the Bloomberg Markets Global Poll say compensation is less or much less than they had hoped for. Just 14 per cent say their pay exceeds expectations. A third say they earn about what they thought they would.
And that's not the only worry, Bloomberg Markets magazine reports in its June issue. The mid-April survey of traders, analysts, money managers, and executives who are Bloomberg customers finds concern that Wall Street may continue to shrink as tighter regulations crimp profits. And many respondents have little faith that regulators will prevent the next meltdown. Banks, they say, are still too big to fail.
The largest banks, after getting bailed out in 2008 and 2009, are under pressure to reduce costs as new regulations force them to use less leverage, take less risk, and get out of some businesses altogether. That means cutting pay. It's a topic executives discuss every quarter. In earnings calls in April, Morgan Stanley CEO James Gorman and JPMorgan Chase CFO Marianne Lake were among those boasting about declines in employee pay as a portion of revenue.
The trend is clear. Goldman Sachs, for one, set aside US$12.7 billion for compensation last year, or 36.8 per cent of revenue. Since the company went public in 1999, the only lower number was 36 per cent in 2009. The 2014 figure averages out to US$373,265 per employee, down from US$504,750 in 2007.
"They're still making decent money, but it's nothing like 2007," says Jeanne Branthover, head of the financial services division at Boyden Global Executive Search. "It's harder to get a big bonus because there are more metrics that come into play, including how well the whole firm does."
Still, while bankers may complain about getting hit in the wallet, buy-side employees are seeing their pay hold up fine, Ms Branthover says. "Areas of finance like wealth management, asset management, which didn't suffer too much during the crisis, are still doing well," she says. The poll is a representative sample of Bloomberg customers, so it covers both the buy and sell sides.
Overall, the future of Wall Street in the next decade looks smaller: Forty-three per cent say it will shrink as regulation erodes opportunities, while a surprisingly high 18 per cent say it will collapse in another crisis. Just 7 per cent pick the rosy outlook of growth and greater profit.
Even as they see shrinkage, respondents aren't optimistic that regulators have fixed a key problem from 2008, when the collapse of Lehman Brothers left the financial system teetering. Banks are still too big to fail, 71 per cent of those polled say, either because they're too complex (the most popular response) or because regulators focus on the wrong things. Only 21 percent say too big to fail has been fixed through decreased leverage or regulatory plans to wind down troubled companies.
If banks are still too big to fail, don't just blame the regulators. Thomas Hoenig, vice chairman of the US Federal Deposit Insurance Corp, says the fault may lie with the institutions themselves.
"They're just too big and complex to manage," he says. "Every time they turn around, they break a rule, violate some sanction. That's why there is continuing pressure to break them up. The market will force the biggest banks to shrink, divest, or even break up."
While financial pros complain about regulations, there's a split, with 39 per cent saying there has been significant or extensive damage to their business. A slim majority of 51 per cent say the impact has been limited or nonexistent. Some 5 per cent say regulations have actually been good for them.
When it comes to compensation, financial professionals aren't just worried about their own. They're also concerned about income inequality across society-up to a point. The best way to address that, 43 per cent of respondents say, is for government to spend more on education and infrastructure. Another 25 per cent say taxes should be cut to promote growth, while 13 per cent say inequality isn't a problem. On the other hand, relatively few go with the option that might hit closest to home: Just 16 per cent recommend taxing the rich.
The Bloomberg Markets Global Poll gathered responses from 1,280 Bloomberg terminal subscribers. It was conducted April 14 and 15 by Selzer & Co. of Des Moines, Iowa. The margin of error is plus or minus 2.7 percentage points. BLOOMBERG