Austerity, Wall Street-Style
Carpooling on Private Jets Is In as Boffo Pay Ticks Lower
By ROBERT FRANK
In Christmases past, the top bankers on Wall Street would often load their families onto a private jet and head to the beaches of St. Barts or slopes of Aspen for the holidays.
This holiday season, many Wall Streeters are flying commercial, according to jet brokers. Those who are still flying private are jet-pooling with strangers to cut costs. Some are even skipping the catered in-flight meals, which can cost $1,000 or more for four people.
"They're telling me, 'We'll just bring our own lunch,' " said Ricky Sitomer, chief executive of Blue Star Jets, a private-jet charter company. "They still want to travel in luxury, but they want the best value they can get."
Austerity is a relative concept on Wall Street, where year-end bonuses are measured in "bucks" (millions) and flying private is often considered a basic human need. Yet this year, amid the largest decline in bonuses since the onset of the financial crisis, the Street's big spenders are reining in their seasonal shopping spree in favor of more restrained indulgence. Brown-bag lunches aboard the Gulfstream are just the start.
December is usually a time when bankers crowd the showrooms and aisles shopping for their next big bonus toys. But jewelers, sports-car dealers and yacht brokers say bankers this Christmas are hard to find.
"We haven't seen them come in yet," says Jeff Drajin, looking out over a largely empty showroom at Manhattan Motorcars. Mr. Drajin, who sells Lamborghinis, Bentleys and Lotuses, says that in the good old days of 2007 and even 2009, December would see bankers start pouring in. "This year is different. It's a little quiet."
While pay may increase slightly in the broader financial-services world—including retail banks, hedge funds and private-equity firms—bonuses at the core Wall Street firms are likely to take a double-digit hit, analysts and pay consultants say. On Monday, New York Stock Exchange member firms that conduct business with the public reported third-quarter after-tax profits of $4.7 billion, down from $8.7 billion in the third-quarter of 2009.
Wall Street bonuses are likely to be down 22% to 28% this year, according to Options Group, an executive-search and consulting firm. The drop follows last year's much-criticized surge in banker pay and highlights growing uncertainty on Wall Street ahead of regulatory scrutiny and weak financial markets.
Bankers at Goldman Sachs Group Inc., Morgan Stanley, Citigroup Inc., Bank of America Corp.'s Merrill Lynch and J.P. Morgan Chase & Co. say they are being told bonus pools are likely to be down between 10% to 25%. Some divisions, like proprietary trading, could be down as much as 50%, bankers said.
Exact bonus amounts won't be known for another month or two, since most banks pay out bonuses early in the new year. Yet senior bankers who have seen bonus-pool estimates say many employees are likely to be disappointed.
One Citi banker said colleagues who have been coming out of compensation meetings in the past two weeks "look like they've been hit by a truck."
Bankers will get less cash this year in part because of new pay structures. Regulators and shareholders have pushed banks to link pay to long-term performance rather than short-term trading gains. As a result, some bankers, accustomed to getting as much as 50% of their bonus in cash, may get only 20% this year, with the rest usually paid out in deferred stock, according to Wall Street compensation consultants.
Not that Wall Street is exactly hurting. Total pay for the top three dozen publicly held securities and investment-services firms is expected to top $140 billion, according to a Wall Street Journal study. Goldman Sachs set aside $13 billion for compensation and bonuses in the first nine months. That is down about 20% from last year but works out to more than $367,000 per employee.
"Let's be honest, 2010 is still going to be a pretty darn good year," said Michael Karp, chief executive of Options Group. "But people have been humbled. I don't think we'll see them resume their exuberant habits or the wild crazy parties."
Jonathan Beckett, CEO of yacht brokerage firm Burgess, said demand for weekly yacht rentals in the Caribbean this winter is "quite poor," in part because of Wall Street.
In previous years, yachts in the Caribbean were booked months in advance for the prime week after Christmas. This year, there are dozens of boats up to 250 feet long still available. The boats usually charter for between $250,000 to $1 million a week—food, beverages and fuel not included.
Bankers booking boats are discount shopping, with some charters seeing price cuts of 20% or more, Mr. Beckett says. Many are also booking cheaper, shorter trips.
"They used to call up and say, 'I want this boat on this date, just send me the contract,' " Mr. Beckett says. "Now they're saying, 'Who's giving the best deals?' "
Wall Street's taste in bling has also moved downscale. Wempe, a high-end jewelry and watch store in midtown Manhattan, says business is booming, especially for exclusive watches like the $65,000 A. Lange & Söhne's Datograph. Yet most of the demand is from rich Chinese and Brazilians, not Wall Streeters.
"The overall spending of the Wall Street group has definitely shrunk," said Ruediger Albers, president of Wempe's U.S. division. "They've got other issues to contend with, like a roof over their head and private school."
One area where bonus spending remains strong is real estate. But bankers are redefining their ideas of a summer cottage. Rather than buying or renting 12,000-square-foot homes, they are downsizing to 6,000 to 8,000 square feet.
"It still accommodates a Brady Bunch-size family," says Beate Moore of Sotheby's International Realty. "But it's not over the top."
Write to Robert Frank at firstname.lastname@example.org