Goldman, Morgan Stanley to Slash Bonuses

Goldman Sachs Group Inc., Morgan Stanley Dean Witter & Co. and other Wall Street firms are likely to reduce employee bonuses by half to about $6.7 billion as the firms cut costs after their worst year in a decade, recruiters and industry executives say.

This week Goldman (ticker symbol: GS) and Morgan Stanley (MWD), the two biggest sellers of U.S. stocks, will tell workers how much to expect in bonuses, which account for three-quarters of compensation for investment bankers and traders.

The drop in bonuses--which last year totaled a record $13.3 billion, said N.Y. state Comptroller H. Carl McCall--still leaves bankers making as much as they did in 1998, as the stock market rallied and business boomed, according to the Securities Industry Assn.

“Wall Street knows better than anybody what’s coming--profits are down, bonuses will be way down,” said Chuck Wardwell, head of financial services recruiting at Korn/Ferry International, the largest executive search firm. “No one should be surprised.”

The securities industry is undergoing its biggest round of job cuts in more than a decade and many firms have frozen salaries. U.S. stock offerings are down by 40% from 2000 and the value of mergers down by half. Both are major sources of revenue for securities firms, and industry earnings are expected to plummet 47% to $11.2 billion, according to the association, the industry trade group.

The SIA estimated 26,000 jobs were eliminated in the industry through October, the biggest decline since 1987. New York has seen the bulk of the job losses, partly because an estimated 6,000 to 7,000 jobs moved across the Hudson River to New Jersey after the World Trade Center was destroyed on Sept. 11.

Morgan Stanley’s profit dropped 35% in the first nine months of its fiscal 2000 from the same period last year, while Goldman’s fell 26%.