New York City is in for a banner 2007 if the rule holds true that the vigor of the local economy is highly correlated to the year-end bonuses paid to Wall Street’s investment bankers.
Goldman Sachs Group Inc., already the financial world’s most profitable bank, announced yesterday that third-quarter revenues, bolstered by its investment banking and trading operations, set a new Wall Street record.
As part of the announcement, Goldman told employees it was setting aside $13.9 billion in compensation — averaging out to some $542,000 for each of the 27,647 workers on its payroll — at the end of its third quarter. The firm allocates 50% of revenues to pay for the first three quarters and about 36% in the final quarter.
Although Goldman Sachs is just one of many Wall Street firms looking for a greater share of its earnings from its sales and trading operations these days, the firm’s investment banking fees rose 27% during the third quarter. And it is bonus checks earned for striking old-fashioned investment banking deals that are cashed and trickle down into all areas of New York City’s economy.
Wall Street bonuses are one of many reasons why the New York City market is an anomaly. Combined with falling mortgage rates, this strong showing by Wall Street may continue to buoy our market. Only time will tell.