Corks popping on Wall Street

Times Staff Writer

On Wall Street, it's beginning to look a lot like Christmas.

Morgan Stanley Chief Executive John Mack got his present this week -- grants of stock and options valued at $40 million.

That's a record for a Wall Street chief executive, but it's the same story all over town.

At Goldman Sachs Group Inc., employees will earn an average of $622,000 this year, thanks to record profit of $9.4 billion.

The outsize paychecks are a reflection of a boom in takeover activity and a robust stock market, which translate to bigger profits for investment banks and stock brokerages.

Even so, "it's hard to wrap your mind around these numbers," said Ed Durkin, director of corporate governance for the United Brotherhood of Carpenters and Joiners of America.

Michael Karp, chief executive of Options Group, a New York-based firm that consults on executive hiring and compensation, echoed that theme.

"When CEOs are being paid $40 million or $50 million, those are mind-boggling numbers," he said.

Overall bonuses are expected to rise 15% to 20% from last year, according to Options Group. Investment bankers and equity traders may take home as much as 25% more than last year.

The joy is trickling down to high-end New York merchants who cater to the Wall Street set.

At the Bubble Lounge, a champagne bar in the trendy Tribeca neighborhood, business lately has been up about 20% to 25% over last year, said co-owner Emmanuelle Chiche.

It's not unusual for investment bankers to stop in, eager to raise a glass, the day they learn their bonus amounts, Chiche said.

"Champagne is a celebratory drink," she said. "People, after they get the amazing news of their incredible bonuses, want to express their happiness with the pop of a cork."

The Dow Jones industrial average has risen more than 16% since Jan. 1, so most people with investments in stocks or mutual funds are probably feeling at least a little bit richer this year.

But in Manhattan, the capital of capitalism, there is an almost palpable smell of fresh money.

"All industries -- real estate, car dealerships, art dealers, department stores -- feel the effect of bonuses on Wall Street because this is where the money is being spent," said Richard Grossman, director of downtown sales at Halstead Property, a residential real-estate brokerage firm in New York.

The prime season for Manhattan's real-estate market begins in December, Grossman said, because that's when brokerages begin to tell their employees how big their bonuses will be. The bonuses typically are paid in January so employees can delay paying taxes on the money until the following year.

Bonuses are critical in part because even veteran financiers earn relatively low salaries -- on Wall Street that means no more than $250,000 -- and get up to 90% of their compensation from year-end bonuses.

The bonuses aren't the result of uncontrolled largesse by brokerage firms, Karp said, but rather a competitive necessity because firms routinely try to pick off their rivals' best-performing employees.

And for Wall Street stars, there's always the tug of hedge funds and private-equity funds, which can pay much more than traditional Wall Street firms.

"It's a talent war out there," Karp said.


Times staff writer Kathy M. Kristof contributed to this report.

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