1 Thing Investors Need to Know About Wall Street Pay Cuts
What's happening in the headlines can affect you as an investor. Here's what's going on, what you need to know, and what you should do.
The cold, hard facts
Reuters is reporting that the average Wall Street bonus will decline by 20% to 30% this year, as banks cut costs and lay off workers in a weak environment for trading and deal-making.
Yearly salaries for traders, bankers, and top executives are typically $100,000 to $1 million. But the majority of their compensation comes as year-end bonuses, based on the individual's and the company's performance.
The expected pay cuts for 2011 come after two years of record wages for Wall Street workers. But this year, the big trading and investment banking houses are reporting increasingly bleak earnings and have begun laying off thousands of employees.
Last month, Goldman Sachs (NYS: GS) reported a quarterly loss, only the second in its history as a public company. Morgan Stanley (NYS: MS) and JPMorgan Chase (NYS: JPM) posted sharp declines in third-quarter operating earnings.
One thing you need to know
The 2008 financial crisis isn't over. The highly levered positions all these banks found themselves in, and needed to be bailed out of, are still in the process of being unwound, to one degree or another. Bank balance sheets are notoriously difficult for the average investor to read in the best of times. Trying to decipher the remains of a bank's subprime exposure today is difficult even for experts.
That being said, if you're not currently invested in any of the banks deemed at the height of the crisis to be "too big to fail," now is still not the time to get in, even if a weak-trading and deal-making environment drops the share prices to what seem like bargain prices.
But if you're just champing at the bit to get into banks, think about a company like PNC (NYS: PNC) . At $54 per share with a P/E of 8, it's very reasonably priced, and it fared better than many of its peers through the financial crisis.
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At the time this article was published Fool contributor and newshoundJohn Grgurichloves his Reuters feed so much he wants to marry it, but he owns no shares of any of the companies mentioned above. The Motley Fool owns shares of JPMorgan Chase and PNC Financial Services Group. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has a scintillatingdisclosure policy.