(December 8) – “The gap between the haves and have-nots on Wall Street rarely has been wider,” writes Charles Gasparino in today’s Wall Street Journal.

“As the Wall Street bonus season gets into full swing, securities firms are preparing to boost the bonuses of their top investment bankers and traders between 20% and 25%, according to executive recruiters. At the same time, executives in less-profitable lines of business, such as junk-bond operations, likely will see bonuses decline from the previous year.

“‘This is a year where everyone will be much more discriminating in how they compensate than in the past,’said Gary Goldstein, president of Whitney Group, a Wall Street executive-search firm. ‘We’re heading into murky waters.'”

“The problem for big Wall Street firms: Lines of business that produced huge profits earlier this year — such as telecommunications, banking and Internet initial public-stock offerings — have all but dried up. Meanwhile, most of these firms are projecting a continued profit decline for their bond operations.

“The mixed-bonus picture comes as Wall Street concludes its most profitable year ever, according to the Securities Industry Association, the sector’s major trade group. Wall Street firms will generate an estimated $22 billion of profit from their U.S. operations this year, compared with the previous record of $16.27 billion for 1999, the SIA says. The bulk of the profit was generated earlier in the year, before the Nasdaq Stock Market meltdown that began during the spring.

“Indeed, this will be one of the few years in which Wall Street bonuses will mostly be higher even as markets are likely to end the year lower. As of Thursday, the Nasdaq Composite Index is down 32% for the year; the Dow Jones Industrial Average is down 7.6%.

“Bonuses are big news on Wall Street this time of year. Unlike in corporate America, securities-industry bonuses typically represent as much as 90% or more of an executive’s total pay package. Next week, three major investment firms — Goldman Sachs Group Inc., Morgan Stanley Dean Witter & Co. and Lehman Brothers Holdings Inc. — will announce bonuses to employees. Merrill Lynch & Co. will announce bonuses internally in mid-January.

“Overall, bonuses at the big Wall Street firms should rise about 10% from last year’s levels. The New York State comptroller’s office estimates bonuses paid to securities-industry employees should reach $13.33 billion this year, compared with $12 billion for 1999.
The SIA estimates total compensation expenses for U.S. securities firms this year at $74.5 billion, compared with $60.1 billion for 1999 and $47.3 billion for 1998.