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Wall Street bonuses flood NYC's economy

2007-06-06 10:52:40

By ADAM GOLDMAN, AP Business Writer Tue Dec 19 2006, 6:36 PM ET

NEW YORK - When Michael Aaron learned that Wall Street investment banks were

going to be shelling out record bonuses this holiday season, the savvy wine

merchant uncorked his own plan to make serious dough. He paid for a double-page

advertisement in The New York Times, boasting a rare bottle of 1995 Dom

Perignon. The price tag $14,950.

"We thought we'd put this temptation out there," said Aaron, chairman of

Sherry-Lehmann wine store on Madison Avenue.

The $15,000 bottle of bubbly is just one example of how record Wall Street

bonuses this year can trickle through New York City's economy. People are

buying multimillion-dollar apartments. They are driving $40,000 BMWs out of the

showroom.

A report released Tuesday by the state comptroller said Wall Street is expected

to pay out $23.9 billion in bonuses, shattering last year's record by 17

percent.

The impact of such bonuses on the New York economy is profound.

Bonuses are expected to generate $1.6 billion in tax revenues for New York

state and another $500 million for New York City. For every job created on Wall

Street, three other jobs are created in the city and suburbs.

"Wall Street jobs create jobs," said Ken Bleiwas, deputy comptroller. "Why?

Because they are pumping money into the economy. They're going out restaurants,

they are purchasing all kinds of consumer goods."

The most jaw-dropping bonuses are being doled out by Goldman Sachs Group Inc.,

the world's largest investment bank. The company reported a staggering profit

last week of $9.4 billion and said it was dedicating $16.5 billion for

salaries, bonuses and benefits at the end of the year.

The upper echelon of Goldman Sachs called the "golden 25" could get at

least $25 million each.

Lehman Brothers Holdings Inc., and Bear Stearns Cos. said they would pay out

about $12 billion in compensation more than $300,000 per employee.

Morgan Stanley Inc., the second-largest U.S. investment house, gave chief

executive John Mack $40 million in stock and options for 2006, reflecting one

of the largest bonuses awarded to a Wall Street CEO.

The bonus numbers are especially mind-boggling when compared with the salaries

of average New Yorkers.

The comptroller estimated that bonuses will average $137,580 in 2006, although

most Wall Streeters make much more than that. Excluding people working on Wall

Street, the average New Yorker earned $56,634 in 2005. Wall Street accounts for

less than 5 percent of all the jobs in the city but more than 20 percent of the

wages.

"When Wall Street does well, New York City and New York state do well,"

Comptroller Alan Hevesi said. "Wall Street bonuses are spent in the city and in

surrounding suburbs on entertainment, real estate, automobiles, and other

consumer goodsall of which generates jobs and tax revenues."

Real estate is a big beneficiary of bonuses, as plenty of bankers look to

upgrade their digs or buy their first pad.

"A lot of my Wall Streeters have been pounding the pavement anticipating the

bonuses," said Louise Phillips Forbes, of Halstead Property. "They're prepared

to pay a tremendous amount of money."

Earlier this month, Forbes said she sold 11 apartments. More than half of those

buyers worked on Wall Street. Forbes says she has about 200 apartments for sale

ranging from $500,000 to $6 million. Many of those, she said, will go to

bankers.

Forbes said the bonuses heat up the market in another way. Those who do not

work on the Street try to close on new homes before those beefy bonuses arrive.

"People started buying before bonuses were even announced so they wouldn't

compete with Wall Streeters," Forbes said.

Gregory J. Heym, chief economist for Brown Harris Stevens, said it's difficult

to say whether bonuses cause real eastate prices to spike in certain

neighborhoods.

"I think a lot of it is going to get masked in the fact that the sales won't

close for a long time because they're in new developments," he said. "That sort

of makes it hard to attribute any increase to bonuses."

Jeff Falk, president of BMW of Manhattan, has an advantage over real estate

brokers.

They can't bring their wares to doorstep of the investment and banking

community, but he can.

In July 2005, BMW of Manhattan opened a second showroom on Wall Street. He said

his company plans for bonuses, ensuring it has enough inventory to satisfy any

urges to buy a sleek BMW.

Falk said he's running an ad that says: "My bonus is faster than your bonus."

And you can't forget that Wall Street essential the fancy suit.

"It definitely means business," said Phil Kornblatt, director of retail for

Hickey Freeman, a maker of fine suits that are popular on Wall Street and

routinely cost $1,500. "We noticed a big increase in sales, and I believe most

of it is due to the bonuses."

Charles de Rancher, 24, works in New York for Bayern LB, a German financial

institution. The conservative Frenchman says he has no intention of running out

and buying a car or taking a trip to Las Vegas.

Like many young financial whizzes, Rancher is going to invest his money in a

safe place, one that promises a decent return over the long haul.

"I'm sorry, I'm a pragmatic guy," he said. "The bonus goes to repayment of the

principle on my new mortgage."

So far, nobody has snapped up Aaron's "Methuselah," a 6-liter bottle of

champagne.

But he's hoping. Hoping some Wall Street executive with multimillion-dollar

bonus buys it for a New Year's party, making it the most expensive bottle of

any wine he's ever sold.

"It would be one hell of a New Year's party," Aaron said.

And one heck of a bonus for Aaron.