Yesterday was another sub-prime related wipe-out on Wall Street as big banks and brokers tumbled again, due to ratings downgrades from their own kind. This is a sure sign that the credit-crunch market shock is entering a new and more dangerous phase.
Citigroup, the largest bank in the U.S. as measured by assets, dropped to fresh four-year lows after its Wall Street “colleague” Goldman Sachs downgraded the stock. Goldman said that credit-market losses may cause Citi to report $15 billion in additional losses and asset write-offs over the next two quarters.
But Goldman was on the warpath for scalps from more than just Citigroup. Merrill Lynch and Morgan Stanley also slumped toward new lows after a Goldman analyst cut the share-price estimate on both stocks, sighting more sub-prime fallout ahead for these two brokers as well.
Blood in the Water on Wall Street Won’t Affect Year-End Bonuses
When Wall Street’s elite firms begin attacking their own like a pack of hungry sharks smelling blood in the water; you just know that the credit crunch is taking a turn for the worse. I expect more market shocks dead ahead.
Now contrast that story with this reported by Bloomberg news yesterday; the headline says it all: “Wall Street Plans $38 Billion of Bonuses as Shareholders Lose.”
Investors in the financial sector are taking it on the chin this year, with big banks and brokers slumping the most since 2002. In fact, firms in the securities industry have lost $74 billion of their combined stock market value this year, according to Bloomberg. But that “won't prevent Wall Street from paying record bonuses, totaling almost $38 billion” this year.
Yes, you read that right. Wall Street fat-cats will still enjoy huge bonuses this year; despite growing sub-prime related losses!
Bonuses Equal Four-Times the Average American’s Income
In fact, the “average” bonus paid on Wall Street this Holiday season is likely to be about $201,500 per person – “more than four times the $48,201 median household income in the U.S. last year, according to U.S. Census Bureau statistics.”
Wall Street is swimming in red-ink thanks to nearly $50 billion (and counting) in losses and asset write-offs so far due to the credit crunch. Ah, but booming M&A activity earlier this year should provide plenty of year-end bonus money for the Wall Street fat-cats.
But don’t be fooled. Once the books are finally closed on 2007, and those hefty year end bonuses are paid and cashed in – that’s when you’ll begin seeing the real financial damage caused by the credit crunch. Just as soon as this year’s bonuses are safely paid, that’ll be the signal to clear-the-decks with even more asset charge-offs and losses in early ’08.
Whatever you do; please don’t pity the Wall Street investment bankers this time next year when you read about skimpy 2008 bonus awards. Just remember the fat paychecks they cashed in December 2007 – on the backs of billions in investor losses – and still growing!
Interesting Article.
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Posted by: Wall Street Comps | November 20, 2007 at 02:37 PM