Wall Street's bonuses fell 25 percent, watchdog says

NEW YORK (Reuters) - Wall Street's bonuses fell nearly 25 percent in 2011, a New York City fiscal watchdog estimated on Monday, a less severe drop than the industry had anticipated, though still likely to deal a blow to the economies of New York City and New York state.

Compensation experts had said this important component of total wages earned by securities industry employees would plunge 30 percent to 40 percent.

However, the decline in bonuses as estimated by the New York City Independent Budget Office was nearly twice that forecast last week by the state comptroller, who had forecast a 13 percent shrinkage, to $121,150 per person.

Profits earned by Wall Street firms were estimated by the Independent Budget Office at $10.5 billion for 2011, a steep drop from $27.6 billion in 2010.

Last week, State Comptroller Thomas DiNapoli forecast that Wall Street's profits in 2011 would not top $13.5 billion.

Wall Street, which powers the economies of New York City and New York state, is expected to shed 4,300 jobs in 2012, while wages, including bonuses, will fall 7.5 percent, the Independent Budget Office said in a statement.

In contrast, the City Council Finance Committee, in a separate report issued on Monday, said that in 2011 the average wage earned by a securities industry worker should rise 1.6 percent to $369,000 a year.

Wall Street's profits and high compensation drive job creation in a host of other industries, from law firms to restaurants.

The forecast for a 2011 pay increase for Wall Street workers

looks slim when compared with the 17.6 percent gain seen in 2010 that the Finance Committee estimated.

The forecasts by the Finance Committee and the Independent Budget Office, which plays the same role for city that the Congressional Budget Office does for Congress, show ongoing struggles for the securities industry, which faces stiffer federal regulations and reduced trading volume.

Europe's debt problems also present a challenge for both Wall Street and the entire U.S. financial sector.

U.S. banks have about $80 billion of exposure to Spain, Italy, Portugal, Ireland and Greece, the Finance Committee said in a separate report issued on Monday.

"On a positive side, industry reports suggest Wall Street has been pricing in the possibility of a Greek default since early 2010," the Finance Committee report said.

The Independent Budget Office, the Finance Committee, and City Comptroller John Liu on Monday presented their analyses of Mayor Michael Bloomberg's $68.7 billion budget plan.

Tax revenue should surpass the mayor's forecast by $227 million in the fiscal year that ends on June 30, and by $380 million in the following year, the Finance Committee said.

New York City's economy, despite Wall Street's ongoing upheaval, has added back 64 percent of the 139,800 private sector jobs lost during the recession, according to the Finance Committee. However, the city's unemployment rate, after falling to 8.6 percent in April 2011, has risen since June and hit 9 percent in December.

The Independent Budget Office predicted the city would collect $230 million more tax revenue in the current fiscal year. But tougher regulations for Wall Street, which could clip the sector's profits, led the IBO to cut the forecast for tax revenue it made in December for 2013 by nearly $460 million. For fiscal 2014, it cut its estimate by $630 million.

Still, the comptroller predicted that curbs on proprietary trading could cause new companies to spring up as securities companies clamp down on this activity.

"It is our feeling that presumably, proprietary trading operations that are spun off by large financial firms will still operate and for the most part would stay in New York City," he said in a statement.

(Reporting by Joan Gralla; Editing by James Dalgleish, Dan Grebler and Bob Burgdorfer)

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Wall Street's bonuses fell 25 percent, watchdog says

NEW YORK (Reuters) - Wall Street's bonuses fell nearly 25 percent in 2011, a New York City fiscal watchdog estimated on Monday, a less severe drop than the industry had anticipated, though still likely to deal a blow to the economies of New York City and New York state.

Compensation experts had said this important component of total wages earned by securities industry employees would plunge 30 percent to 40 percent.

However, the decline in bonuses as estimated by the New York City Independent Budget Office was nearly twice that forecast last week by the state comptroller, who had forecast a 13 percent shrinkage, to $121,150 per person.

Profits earned by Wall Street firms were estimated by the Independent Budget Office at $10.5 billion for 2011, a steep drop from $27.6 billion in 2010.

Last week, State Comptroller Thomas DiNapoli forecast that Wall Street's profits in 2011 would not top $13.5 billion.

Wall Street, which powers the economies of New York City and New York state, is expected to shed 4,300 jobs in 2012, while wages, including bonuses, will fall 7.5 percent, the Independent Budget Office said in a statement.

In contrast, the City Council Finance Committee, in a separate report issued on Monday, said that in 2011 the average wage earned by a securities industry worker should rise 1.6 percent to $369,000 a year.

Wall Street's profits and high compensation drive job creation in a host of other industries, from law firms to restaurants.

The forecast for a 2011 pay increase for Wall Street workers

looks slim when compared with the 17.6 percent gain seen in 2010 that the Finance Committee estimated.

The forecasts by the Finance Committee and the Independent Budget Office, which plays the same role for city that the Congressional Budget Office does for Congress, show ongoing struggles for the securities industry, which faces stiffer federal regulations and reduced trading volume.

Europe's debt problems also present a challenge for both Wall Street and the entire U.S. financial sector.

U.S. banks have about $80 billion of exposure to Spain, Italy, Portugal, Ireland and Greece, the Finance Committee said in a separate report issued on Monday.

"On a positive side, industry reports suggest Wall Street has been pricing in the possibility of a Greek default since early 2010," the Finance Committee report said.

The Independent Budget Office, the Finance Committee, and City Comptroller John Liu on Monday presented their analyses of Mayor Michael Bloomberg's $68.7 billion budget plan.

Tax revenue should surpass the mayor's forecast by $227 million in the fiscal year that ends on June 30, and by $380 million in the following year, the Finance Committee said.

New York City's economy, despite Wall Street's ongoing upheaval, has added back 64 percent of the 139,800 private sector jobs lost during the recession, according to the Finance Committee. However, the city's unemployment rate, after falling to 8.6 percent in April 2011, has risen since June and hit 9 percent in December.

The Independent Budget Office predicted the city would collect $230 million more tax revenue in the current fiscal year. But tougher regulations for Wall Street, which could clip the sector's profits, led the IBO to cut the forecast for tax revenue it made in December for 2013 by nearly $460 million. For fiscal 2014, it cut its estimate by $630 million.

Still, the comptroller predicted that curbs on proprietary trading could cause new companies to spring up as securities companies clamp down on this activity.

"It is our feeling that presumably, proprietary trading operations that are spun off by large financial firms will still operate and for the most part would stay in New York City," he said in a statement.

(Reporting by Joan Gralla; Editing by James Dalgleish, Dan Grebler and Bob Burgdorfer)

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Gap's Net Drops 40 Percent but Results Top Forecasts

Gap reported a 40-percent drop in fourth-quarter net income as the clothing retailer grappled with higher costs and discounted heavily to get shoppers in its stores during the crucial holiday season.

The San Francisco clothing chain [GPS  Loading...      ()   ] said Thursday that it earned $218 million, or 44 cents per share, in the three-month period ending Jan. 28. That compares with $365 million, or 60 cents per share, in the year-ago period.

Revenue fell to $4.28 billion from $4.36 billion in the year-ago period. Revenue at stores opened at least a year, a key metric of a retailer's health, fell 4 percent.

Analysts had expected the company to report earnings excluding items of 42 cents per share on revenue of $4.29 billion, according to Thomson Reuters.

Looking forward, the company expects diluted earnings per share to be in the range of $1.75 - $1.80 for the fiscal year 2012.

In tandem with this positive forecast, Gap also announced a $1 billion share repurchase on Thursday, and approved a plan to increase the annual dividend per share from 45 cents in 2011 to 50 cents in 2012.

"There's no doubt that improving our performance, especially in our base businesses, is the top priority in 2012, and we're confident this is the right time to invest wisely to win back customers," said Gap's CEO Glenn Murphy.

After the announcement, shares of the company wavered in after-hours trading. Get after-hour quotes for Gap here. 

© 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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Romney Proposes Slashing Top Tax Rate to 28 Percent

Former Massachusetts Gov. Mitt Romney, seeking to kick-start his presidential campaign among recalcitrant conservatives, proposed Wednesday cutting the top income tax for individuals to 28 percent.

Mitt Romney speaks during a town hall meeting campaign stop at Eagle Manufacturing Corporation February 21, 2012 in Shelby Township, Michigan.Romney’s earlier economic plan called only for preserving the current top tax rate of 35 percent, while holding out the promise of lower rates later in an overhaul of the tax code.

But facing a major challenge from upstart Republican rival Rick Santorum, he has chosen to outline such an overhaul in Arizona ahead of critical Feb. 28 primaries there and in Michigan — and before a televised debate Wednesday night in Mesa.

Romney’s top economic adviser, Glenn Hubbard, said the plan would cut all six current tax brackets — 10, 15, 25, 28, 33, and 35 percent, depending on a taxpayer’s income — by the same proportion of 20 percent. That would produce this new set of tax brackets: 8, 12, 20, 22.4, 26.4, and 28 percent.

"We want middle-income Americans to be the place we focus our help, because it's middle-income Americans that have been hurt by this Obama economy," Romney said in annoucning the plan.

Hubbard said Romney is committed to making his plan both “revenue neutral” – meaning it won’t add to the budget deficit — and “distributionally neutral” – meaning that it won’t shift the tax burden from upper-income Americans to middle and working class Americans. Since the largest benefits from rate reduction would go to upper income taxpayers, so will the burdens of “base broadening” reductions in existing deductions needed to keep the government from hemorrhaging revenue, he explained.

Reducing large tax deductions, such as the ones for home mortgage interest and state and local taxes, is politically treacherous because of their popularity with voters and elected officials alike. For now, at least, Romney will dodge any potential backlash by avoiding any specifics.

Romney will pledge to work with Congress on “limiting them,” Hubbard said, but “it is not his intention to take on any specific deduction or exclusion and eliminate it.”

Romney has praised the work of President Barack Obama’s Simpson-Bowles deficit reduction commission, and criticized the Democratic incumbent for ignoring its work. But Romney is also rejecting the commission's recommendation that tax overhaul produce increased government revenue to cut the deficit, while embracing its recommendation to cut the top tax rate to 29 percent or lower.

Hubbard contrasted Romney’s “pro-growth” plan with Obama’s proposal to raise taxes on individuals earning more than $200,000 and households earning more than $250,000. He argued that would hurt economic growth by crimping small businesses, many of which file under the individual tax code.

Hubbard, who advised former President George W. Bush and now is dean of the business school at Columbia University, also cast the Romney plan as superior to Santorum's.

The former Pennsylvania senator would also cut the top individual rate to 28 percent, the level it reached after Congress and the White House agreed on a tax overhaul plan during Ronald Reagan’s presidency, which preserving only one more tax bracket of 10 percent. In the name of “national security,” Santorum has also proposed a zero tax rate for manufacturing businesses as a means of preserving and expanding that economic sector.

The Santorum plan would dramatically expand the budget deficit, Hubbard said, and the zero rate for manufacturing would result in “significant capital misallocation.”

“Net-net, it’s a job destroyer, not a job creator,” Hubbard said.

Santorum and former House Speaker Newt Gingrich, who has proposed an optional “flat tax” system of 15 percent, have accused Romney of timidity. With his new proposal, Romney seeks to counter that charge in advance of the Arizona debate.

Romney’s plan aims to balance two competing priorities of different Republican factions. By proposing to cut the top rate, he bids for support among supply-side conservatives who contend that lower marginal rates are the key ingredient for producing economic growth.

But by vowing to offset the loss of revenue by eliminating some deductions, he responds to concerns among deficit hawks about expanding the tide of red ink that has the federal government spending an estimated $1.3-trillion more than it takes in this year.

And by insisting that those unspecified reductions will fall most heavily on the affluent, he seeks to limit his own exposure as a wealthy former financial industry executive who himself has paid taxes at only around the 15 percent rate because most of his income comes from capital gains. Romney would maintain the current 15 percent rate on dividends and capital gains.

Obama has proposed to tax the “carried interest” received by many hedge fund and private equity executives at higher ordinary income rates rather than as capital gains, arguing that current law gives them an undue advantage. Hubbard said a President Romney would ask his treasury secretary to study the “devilishly hard question” of whether current law should change and tax some of that income at ordinary income rates.

Romney had previously proposed eliminating capital gains taxes on taxpayers earning less than $200,000. That drew fire from some conservatives, and campaign rivals such as Gingrich, on grounds that gave unwarranted preference to a specific group and would have a small economic impact since those taxpayers receive relatively little in capital gains anyway.

Romney also proposes to eliminate the estate tax and the Alternative Minimum Tax, while cutting the top corporate tax rate from 35 to 25 percent.

Hubbard said three different revenue streams would keep the plan from increasing the budget deficit: the “dynamic” effects of economic growth, the additional income that would be subject to taxation through “base broadening," and spending cuts Romney plans that would reach $500 billion per year by 2016. The campaign promised more specifics on those spending cuts within the next week.

In advance of Romney’s tax plan, Obama’s Treasury Department proposed its own corporate tax overhaul plan cutting the top corporate rate to 28 percent by eliminating some existing corporate deductions. Part of the Obama plan includes a minimum tax on the overseas income of U.S.-based corporations.

Hubbard, accusing the administration of a “full-throttle attack on multinationals," said Romney will propose shifting to a territorial system that would not tax corporate income earned overseas.

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Where the ‘One Percent’ Live

Photo: Uppercut Images | Getty ImagesThe wealthiest Americans have been in the spotlight for reasons ranging from public outrage over lavish lifestyles during the recession to executive bonuses in the midst of the financial crisis. The Occupy Wall Street movement was perhaps the most visible culmination of these concerns, broadly protesting against the divide between the majority of the U.S. population and the ultra-rich, referred to by the protesters as the “one percent.” The question arose: Who are the one percent, and where are they from? In fact, the composition of the group variesfrom business people, doctors, lawyers and financial professionals to celebrities, farmers and even government workers. But where do these high-earners live? Even that is a tricky question since many have multiple residences. However, Wealth-X,a global wealth intelligence firm, compiles data on ultra-high net worth (UHNW) individuals, including net worth, but also characteristics such as philanthropic interests, politics and affiliations. A UHNW individual is defined by Wealth-X as anyone with at least $30 million when accounting for a range of assets, including shares in companies, real estate, cash, art collections, private planes and other investable assets. According to Wealth-X, the United States is home to 57,860 such individuals, and when this number is compared to the over 114 million households in the country today, this group would represent approximately 0.05 percent of the nation. Although still only a fraction of the one percent, it is one of the closest estimations of this income group and is a proxy for high net worth individuals under the $30 million mark. For individuals with a net worth above $1 million, this group accounts for about 5 percent of the population.As it turns out, some cities are magnets for UHNW individuals, and the cities with the most of this wealthy class average approximately one in 3,075 people, according to Wealth-X, while the 27,540 UHNW individuals in the top 10 cities have a combined net worth of $3.6 trillion, or 6.2 percent of the total U.S. net worth. “Certain geographic clusters generate and attract wealth,” said Wealth-X co-founder David Friedman. “A concentration of UHNW individuals is certainly indicative of an area’s overall economic health.” So, which U.S. cities have the most ultra-high net worth individuals? Click ahead to find out! By Paul ToscanoPosted 14 February 2012Photo: Danita Delimont | Gallo Images | Getty ImagesUHNW population: 885 Seattle is the largest city in the Northwest and is 10th on the list of cities with the largest UHNW population, according to Wealth-X. Among some of the richest people in the Seattle area are Microsoft co-founders Bill Gates and Paul Allen, Microsoft CEO Steve Ballmer, Amazon founder Jeff Bezos and Starbucks founder Howard Schultz. Major companies in and around Seattle include a number of national names, from Amazon.com, Microsoft and Starbucks to Zumiez, Dendreon and Plum Creek Timber. Photo: Steve Dunwell | Photographer's Choice | Getty ImagesUHNW population: 890 With 890 UHNW individuals living in Boston, 1.5 percent of the country’s UHNW population lives in the region, which is about on par with the metro area’s overall population, accounting for approximately 1.4 percent of the nation’s people. Boston’s billionaire residents include Abigail Johnson and Edward C. Johnson of Fidelity, co-founders of Boston Scientific John Abele and Peter Nicholas, Jack Manning of Boston Capital and Arthur Demoulas of Demoulas Market Basket. Photo: Ron Sherman | Stone | Getty ImagesUHNW population: 960 In the Atlanta metro area, approximately one out of every 5,480 residents has a net worth of over $30 million, according to numbers from Wealth-X and the U.S. Census bureau. Several major organizations are headquartered in the city, including Coca-Cola, Turner Broadcasting, The Home Depot and Delta Airlines. The city is home to the world’s largest airline hub and functions as a major source of economic activity for the Southeast. Atlanta also hosted the 1996 Olympics, which created an economic boom for the city. Among the super-rich who call Atlanta home are Anne Cox Chambers of Cox Enterprises, S. Truett Cathy of Chick fil-A and Bernard Marcus, co-founder of The Home Depot. Photo: VisionsofAmerica | Joe Sohm | PhotodiscUHNW population: 1,855 With an UHNW population that nearly doubles that of Atlanta, Dallas is home to 1,855 individuals worth at least $30 million, according to Wealth-X. The Dallas area is home to major companies including AT&T, Dean Foods, Texas Instruments and Southwest Airlines. Some of the richest residents include billionaire and former presidential candidate H. Ross Perot, oil magnate Ray Lee Hunt and leveraged buyout billionaire Harold Simmons. UHNW population: 2,250 With a well-established oil and gas industry and a level of annual productionthat is greater than the GDP of Austria ($384 billion versus $376 billion), it is no wonder  Houston has a large number of ultra-high net worth individuals. In the Houston metro area that means one in every 2,643 people is worth over $30 million. Some of Houston’s richest people include Kinder Morgan CEO Richard Kinder, fund manager Fayez Sarofim and Houston Texans owner Robert McNair. The city is also the home to several major companies, including ConocoPhillips, Marathon Oil, Sysco and Halliburton. Photo: Robert Clare | Taxi | Getty ImagesUHNW population: 2,300 The nation’s capital is also a magnet for high-net-worth individuals. Among Washington-area billionaires are David Rubenstein, co-founder of the Carlyle Group; Steven and Mitchell Rales of the Danaher Corp.; and Redskins owner Daniel Snyder. With approximately 5.6 million people living within the Washington metro area, which includes parts of Maryland and Virginia, one in every 2,435 residents is an UHNW individual, according to numbers provided by Wealth-X. UHNW population: 2,550 The third-most-populous city in the United States is the fourth-most-populous for UHNW individuals. Chicago is a major financial center and home to major financial and futures exchanges, including the Chicago Stock Exchange, the Chicago Board Options Exchange (CBOE) and the Chicago Mercantile Exchange. Major companies in Chicago include the CME Group, Boeing, Groupon, MillerCoors, United Airlines and RR Donnelley. Some of the billionaires that call Chicago home are private-equity titan Sam Zell, media mogul Oprah Winfrey, former CEO of Wrigley William Wrigley Jr., and founder of Morningstar Joe Mansueto. UHNW population: 4,230 San Francisco has historically been a city where people can strike it rich. The California Gold Rush turned San Francisco into the financial center of the West in the 1800s, while nearby Silicon Valley continues to produce cutting-edge companies and mint new billionaires into the 21st century, often supported by San Francisco’s venture capitalists. Among the largest companies in the San Francisco Bay Area are Hewlett-Packard, Wells Fargo, McKesson and Facebook. The Facebook IPO alone is likely to create approximately 900millionaires and billionaires, but has already produced billionaire Mark Zuckerberg, who lives in Palo Alto. Also associated with the area are Google co-founders Sergey Brin and Larry Page as well as financier George Roberts, engineer Ray Dolby and Riley Bechtel of the privately held Bechtel Corp. Photo: VisionsofAmerica | Joe Sohm | Photodisc | Getty ImagesUHNW population: 4,350 The most populous city in California also boasts the West Coast’s largest population of UHNW individuals. Although Los Angeles is possibly best known for its entertainment industry, the city is also a shipping hub and is home to companies including Occidental Petroleum, Reliance Steel and Health Net, along with many other smaller firms. Billionaires associated with the Los Angeles area include media moguls David Geffen and Sumner Redstone, businessman Kirk Kerkorian and director Steven Spielberg. UHNW population: 7,270 Although it may be no surprise the nation’s most populous city is home to the most UHNW individuals, this segment is “vastly overrepresented in New York,” says Wealth-X. While about 13 percent of the UHNW population live in New York, only 6 percent of the country live in the area, demonstrating that the city is an attractive location for extremely wealthy people. As an international center of finance, New York’s Wall Street attracts and produces high-net-worth individuals, and the city’s cost of living, which is the highest in the country, according to Mercer Consulting, tends to skew the population to the wealthy side of the spectrum. The wealthiest New Yorkers include Wall Street titan Carl Icahn, Mayor Michael Bloomberg, real estate mogul Donald Trump and members of the Tisch family, who are co-owners of the New York Giants.

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