November 17, 2024

You are here: Home / Archives for fourth quarter

Euro Watch: Data Points to Slow Recovery in Euro Zone

January 25, 2013 by Leave a Comment

But in an indication of the hurdles left to scale, Spain’s unemployment surged to 26 percent in the fourth quarter, a record high since measurements began in the 1970s, as a prolonged recession and deep spending cuts left almost 6 million people out of work at the end of last year.

The manufacturing survey published by Markit supports European Central Bank President Mario Draghi’s assertion that the 17-nation currency union is benefiting from “positive contagion” but still hints at an economic contraction in the first quarter of 2013.

Markit’s Flash Composite Eurozone Purchasing Managers’ Index, which surveys around 5,000 companies and is seen as a good growth indicator, jumped to 48.2 from December’s 47.2, beating expectations for a rise to 47.5.

While the index has now held below the 50 mark that separates growth from contraction in all but one of the last 17 months, Markit said the data suggested conditions in the bloc were improving.

“We shouldn’t get too gloomy about those numbers,” Chris Williamson, a data collator at Markit, said. “There is a turning point that took place towards the end of last year and the beginning of this year so things are picking up. Any downturn is looking likely to end in the first half.”

He added, however, that the manufacturing index was “still consistent” with gross domestic product in the 17-country bloc falling at a quarterly rate of about 0.2 percent to 0.3 percent.

The euro zone economy contracted in the second and third quarters of last year, meeting the technical definition of recession, and the downturn is expected to have deepened in the fourth quarter.

Earlier data from Germany, Europe’s largest economy and the bloc’s growth engine, showed its private sector expanded at its fastest pace in a year.

In neighboring France, data from Markit showed that business activity shrank in January at the fastest pace since the trough of the global financial crisis. The preliminary composite purchasing managers’ index, covering activity in the services and manufacturing sectors combined, came out at 42.7 for the month, slumping from 44.6 in December.

Spain’s unemployment rate rose to 26 percent in the fourth quarter of 2012, or 5.97 million people, the National Statistics Institute said on Thursday, up from 25 percent in the previous quarter and more than double the European Union average.

“We haven’t seen the bottom yet and employment will continue falling in the first quarter,” José Luis Martínez, a strategist with Citigroup, said.

Spain sank into its second recession since 2009 at the end of 2011 after a burst housing bubble left millions of low-skilled laborers out of work and sliding private and business sentiment gutted consumer spending and imports.

Efforts by Prime Minister Mariano Rajoy’s government to control one of the euro zone’s largest deficits through billions of euros of spending cuts and tax increases have fueled general malaise, further hampering demand.

Still, Mr. Draghi of the E.C.B. is taking an optimistic view, declaring earlier this month that the euro zone economy would recover later in 2013 and that there was now a “positive contagion” effect in play.

Europe’s top central banker cited falling bond yields, rising stock markets and historically low volatility as evidence for this, causing several forecasters to ditch expectations for an imminent cut in euro zone interest rates.

Article source: http://www.nytimes.com/2013/01/25/business/global/daily-euro-zone-watch.html?partner=rss&emc=rss

Filed Under: Economy News Tagged With: , ,

Investment Into China Declined During 2012

January 16, 2013 by Leave a Comment

BEIJING — China’s foreign investment inflows fell last year for the first time since the global financial crisis, government data showed Wednesday, slipping 4 percent as a troubled world economy reduced investors’ enthusiasm for deals in emerging markets.

But the nation, with the world’s second-largest economy, after that of the United States, still drew $111.7 billion in foreign direct investment in 2012 after a record $116 billion in 2011 and maintaining the country as one of the top destinations for corporate expansion.

Foreign investment is an important gauge of the health of the global economy and of demand for the output of China’s huge manufacturing sector — though such investment is a small contributor to China’s overall capital flows when compared with exports, which were worth about $2 trillion in 2012.

Analysts said cooling growth in China’s foreign direct investment, or F.D.I., did not suggest that investors’ confidence in the country was waning. Rather, it shows China needs another catalyst to drive inflows after the increase from joining the World Trade Organization hit a natural plateau.

“We will see F.D.I. bouncing around $110 billion to $120 billion for some years,” said Tim Condon, an economist with ING in Singapore. “Hopefully, the current administration is going to intensify reform efforts, such as opening of the capital account. That could be momentous, in terms of attracting more F.D.I.”

A new government led by Xi Jinping, the incoming president, is set to take over in March, and investors are hoping that Beijing will pursue changes it had delayed, including the relaxing of capital account controls, to drive China into the next stage of growth.

Analysts forecast that data to be released on Friday would show China’s annual economic growth had rebounded to 7.8 percent in the fourth quarter of 2012 from 7.4 percent in the third — the weakest pace of expansion since the depths of the financial crisis in early 2009.

In December, F.D.I. in China fell 4.5 percent from a year earlier to $11.7 billion, the Commerce Ministry said at a briefing Wednesday.

China joined the W.T.O. in 2001, and foreign direct investment inflows have more than doubled since. Figures from the Organization for Economic Cooperation and Development show China now takes turns with the United States as the world’s top F.D.I. destination, with the United States pulling ahead of China by a slim margin in 2011.

Shen Danyang, a spokesman from the Commerce Ministry, acknowledged that China had to try harder to attract foreign investors, without elaborating. But he stressed that foreign funds were not leaving in a big way.

“It is true that some manufacturing companies are moving out of China,” Mr. Shen said. “But one point I want to remind you is that, so far, there is no big-scale pullout of foreign investment.”

Data showed European and Asian firms had cut their Chinese investment the most, even though Asian firms remained by far the biggest foreign investors in China.

Inflows from the European Union dropped 3.8 percent in 2012 from a year earlier to $6.1 billion, while F.D.I. from the top 10 Asian economies — including Hong Kong, Japan and Singapore — fell 4.8 percent last year to $95.7 billion.

That contrasted with investment from the United States, which rose 4.5 percent on the year to $3.1 billion.

Article source: http://www.nytimes.com/2013/01/17/business/global/investment-into-china-declined-during-2012.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Lumia Sales Lift Nokia Fourth-Quarter Results

January 10, 2013 by Leave a Comment

The Finnish company, which has been losing market share to Samsung and Apple, said the better-than-expected result was also helped by cost cuts, a stronger-than-expected performance from its Nokia Siemens Networks unit and 50 million euros ($65.2 million) in patent royalties.

The surprise announcement lifted the shares to nine-month highs and eased pressure on Chief Executive Stephen Elop, who has been trying to prove his February 2011 decision to switch to Microsoft Windows software was the right one.

Elop was seen to be running out of time after saying that the transition would take two years. Success of the high-end Lumia smartphones has been considered crucial for the company’s survival, and investors had said Elop would need to quit or change strategy if sales did not pick up by early 2013.

“We’re very pleased with the Lumia response,” Elop told analysts, although he added that sales of the latest 920 models, which use the new Windows Phone 8 software, had been constrained by a shortage of supplies.

Nokia estimated fourth-quarter operating margin in its mobile phone business was between break-even to 2 percent. It previously forecast the margin to be around minus 6 percent.

Official results, including more details on its profit and cash position, are due on January 24.

Fourth-quarter net sales in devices and services were about 3.9 billion euros ($5.09 billion), Nokia said. It sold a total of 86.3 million devices. Smartphones accounted for 6.6 million units, of which 4.4 million were the Windows-based Lumia handsets.

Nokia shares rose 10.8 percent to 3.32 euros as some investors cheered the rare positive announcement from Nokia and traders scrambled to cover their short positions.

Nokia had 17 percent of shares out on loan, according to Markit data, making it one of the most “shorted” stocks in Europe.

STILL NEED EVIDENCE

The company said that conditions remained tough despite the stronger-than-expected fourth quarter, and forecast its margin to be around minus 2 percent in the first quarter of this year.

“We continue to operate in a competitive environment with limited visibility,” Elop said.

Some analysts were skeptical about the success of the Lumia strategy. Nokia would not say how many of the Lumias it sold were the newest models rather than the heavily discounted ones launched earlier.

Many also noted Lumias sold in the fourth quarter still make up a small portion of global smartphone sales in the same period, estimated at over 200 million.

“4.4 million Lumias sold is not yet a promise of a turnaround,” said Inderes analyst Mikael Rautanen, who had just downgraded the shares to “sell” on Tuesday.

Bernstein analyst Pierre Ferragu said he was still negative about the shares, rating them “underperform”.

“Last year, in order to sustain Lumia volumes, Nokia had to cut prices very rapidly, driving gross margins close to zero. We believe this will repeat this year,” he said.

Redeye analyst Greger Johansson said it was too early to call it a turnaround.

“They will have to prove a lot more until you can say that,” he said. “I’m not still convinced that they are going to manage to succeed with those new smartphones. They have to sell a lot more in volumes until you can say that.”

($1 = 0.7667 euros)

(Additional reporting by Terhi Kinnunen and Sudip Kar-Gupta; Editing by David Goodman and Sophie Walker)

Article source: http://www.nytimes.com/reuters/2013/01/10/technology/10reuters-nokia-sales.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Economic Growth Revised Up to 3.1%

December 20, 2012 by Leave a Comment

The Commerce Department’s third and final estimate Thursday of growth for July through September was increased from its previous estimate of a 2.7 percent annual growth rate.

Growth in the third quarter was more than twice the 1.3 percent growth in the second quarter. But disruptions from Hurricane Sandy and uncertainty weighing on consumers and businesses from the budget negotiations in Washington are likely to restrain growth in the fourth quarter, according to analysts’ forecasts. Many analysts predict an annual growth rate of just 1.5 percent for this quarter.

Robert Kavcic, an economist at BMO Capital Markets in Toronto, said the revision of third-quarter growth did not change his view that the economy is slowing in the current quarter to an annual growth rate below 2 percent. Mr. Kavcic said a temporary increase in military spending and business stockpiling in the third quarter probably is being reversed this quarter.

And many economists are not expecting much improvement in the first quarter of 2013. The latest forecast by 48 economists for the National Association for Business Economics is for an annual growth rate of just 1.8 percent in January through March. Such growth is considered too weak to significantly reduce the unemployment rate, which was 7.7 percent in November.

But if Congress and the White House reach agreement to avoid tax increases and spending cuts, growth could accelerate next year, many economists, including the Federal Reserve chairman, Ben S. Bernanke, have said.

The Fed said last week it would keep an important interest rate at a record low as long as unemployment exceeds 6.5 percent. It forecast that unemployment would stay that high until late 2015.

The government’s final estimate of a 3.1 percent growth rate for third-quarter gross domestic product is a sharp improvement over its initial estimate of 2 percent — a figure that it later increased to 2.7 percent based on a buildup in business stockpiles.

The further increase this month reflected stronger consumer spending, which accounts for about 70 percent of economic activity. The government said consumer spending grew at an annual rate of 1.6 percent in the third quarter. Its previous estimate was 1.4 percent.

The Commerce Department also raised its estimate of spending by state and local governments to show a gain of 0.3 percent — the first quarterly increase in three years. State and local governments had been cutting payrolls and other spending in the aftermath of the recession. Total government spending grew at an annual rate of 3.9 percent in the third quarter, reflecting a surge in military spending.

The economy was also helped by trade in the third quarter. Exports grew at a faster pace than previously estimated.

The National Association for Business Economics forecasting panel has said it expects G.D.P. to grow 2.1 percent in 2013, little changed from the expected 2.2 percent expansion this year.

Article source: http://www.nytimes.com/2012/12/21/business/economy/economy-grew-3-1-in-3rd-quarter-according-to-revision.html?partner=rss&emc=rss

Filed Under: Economy News Tagged With: , ,

Apple to Resume U.S. Manufacturing

December 6, 2012 by Leave a Comment

“Next year, we will do one of our existing Mac lines in the United States,” he said in an interview to be broadcast Thursday on “Rock Center With Brian Williams” on NBC.

Apple, the biggest company in the world by market value, moved most of its manufacturing to Asia in the late 1990s. As an icon of American technology success and innovation, the California-based company has been criticized in recent years for outsourcing jobs abroad.

“I don’t think we have a responsibility to create a certain kind of job,” Mr. Cook said in the Businessweek interview. “But I think we do have a responsibility to create jobs.”

The company plans to spend $100 million on the American manufacturing in 2013, according to the interviews, a small fraction of its overall factory investments and an even tinier portion of its available cash.

In the interviews, Mr. Cook suggested the company would work with partners and that the manufacturing would be more than just the final assembly of parts. He noted that parts of the company’s ubiquitous iPhone, including the “engine” and the glass screen, were already made in America. The processor is manufactured by Samsung in Texas, while Corning makes the glass screen in Kentucky.

Over the last few years, sales of the iPhone, iPod and iPad have overwhelmed Apple’s line of Macintosh computers, the basis of the company’s early business. Revenue from the iPhone alone made up 48 percent of the company’s total revenue for its fiscal fourth quarter ended Sept. 30.

But as recently as October, Apple introduced a new, thinner iMac, the product that pioneered the technique of building the computer innards inside the flat screen.

Mr. Cook did not say in the interviews where in the United States the new manufacturing would occur. But he did defend Apple’s track record in American hiring.

“When you back up and look at Apple’s effect on job creation in the United States, we estimate that we’ve created more than 600,000 jobs now,” Mr. Cook told Businessweek. Those jobs include positions at partners and suppliers.

Steve Dowling, a spokesman for Apple, declined on Thursday to provide additional details on Apple’s plans, referring to Mr. Cook’s interviews.

Apple has for years done the final assembly of some Macs in the United States, mainly systems that customers buy with custom configurations, like bigger hard drives and more memory than on standard machines.

Mr. Cook’s statements suggested Apple is planning to build more of the Mac’s ingredients domestically, although with partners. He told Businessweek that the plan “doesn’t mean that Apple will do it ourselves, but we’ll be working with people, and we’ll be investing our money.”

While Apple’s products are typically made in Asian factories owned by other companies, Apple itself often purchases the sophisticated manufacturing equipment required to make its cutting-edge designs, spending billions of dollars a year on such machines.

Foxconn Technology, which manufactures more than 40 percent of the world’s electronics, is one of Apple’s main overseas manufacturing contractors. Based in Taiwan, Foxconn is China’s largest private employer, with 1.2 million workers, and it has come under intense scrutiny over working conditions inside its factories.

In March, Foxconn pledged to sharply curtail the number of working hours and significantly increase wages. The announcement was a response to a far-ranging inspection by the Fair Labor Association, a monitoring group that found widespread problems — including numerous instances where Foxconn violated Chinese law and industry codes of conduct.

Apple, which recently joined the labor association, had asked the group to investigate plants manufacturing iPhones, iPads and other devices. A growing outcry over conditions at overseas factories prompted protests and petitions, and several labor rights organizations started scrutinizing Apple’s suppliers.

Almost all of the 70 million iPhones, 30 million iPads and 59 million other products Apple sold in 2011 were manufactured overseas. Apple employs 43,000 people in the United States and 20,000 overseas. An additional 700,000 people engineer, build and assemble iPads, iPhones and Apple’s other products, mostly abroad.

At a meeting with Silicon Valley executives in 2011, President Obama asked Steven P. Jobs, then the Apple chief executive, what it would take to make iPhones in the United States. Mr. Jobs, who died later that year, told the president, “Those jobs aren’t coming back.”

Nick Wingfield contributed reporting.


Article source: http://www.nytimes.com/2012/12/07/technology/apple-to-resume-us-manufacturing.html?partner=rss&emc=rss

Filed Under: Business News Tagged With: , ,

Today’s Economist: Casey B. Mulligan: The Baby Boom and Economic Recovery

October 11, 2012 by Leave a Comment

DESCRIPTION

Casey B. Mulligan is an economics professor at the University of Chicago. He is the author of “The Redistribution Recession: How Labor Market Distortions Contracted the Economy.”

Thanks in part to the baby boom, the employment-population ratio understates the amount that the economy has recovered.

Today’s Economist

Perspectives from expert contributors.

Before the recession began, 63 of every 100 people age 16 and over were employed. The percentage plummeted to 58.4 by the fourth quarter of 2009 and hasn’t moved far from there since.

A variety of economists have used the ratio and its dynamics to indicate that the economy has hardly recovered. Some say the employment-population ratio’s lack of recovery is because of insufficient government spending; others suggest that it might reflect policy failures of the Obama administration.

But the employment-population ratio is influenced by important factors beyond the control of the president. One of them is the aging of the baby boomers. The employment-population ratio was expected to fall as baby boomers reached retirement ages between 2008 and 2015, even without a recession. For this reason alone, a full recovery would mean an employment-population percentage of about 61.

Although much attention last week was given to the August-to-September increase in part-time employment, the average hours worked among private-sector employees have increased sharply since 2009 and are now about the same as they were before the recession began.

The chart below shows a recovery when the quantity of labor is measured in terms of hours worked per capita (gray) or age-adjusted hours worked per capita (red). Both indexes are set to 100 in December 2007; the age adjustment is taken from my book on the labor market since 2007.

The red series hits bottom at 90.8 and now stands at 94.4. Unlike the employment-population ratio’s negligible recovery, the age-adjusted hours series has recovered about 40 percent — four points — in three years.

To be sure, an additional six points of the recovery still remain, and the labor market continues to be depressed by public policies enacted over the last four to eight years. But some of these policies, such as mortgage assistance, the three increases in the federal minimum wage and the federal rules giving states more flexibility to expand food-stamp participation were begun before President Obama took office and probably would not have been overturned if John McCain had won the 2008 election. Some of those policies had broad political support.

Thanks to demographic and political changes, a full labor market recovery may be beyond any president’s reach.

Article source: http://economix.blogs.nytimes.com/2012/10/10/the-baby-boom-and-economic-recovery/?partner=rss&emc=rss

Filed Under: Economy News Tagged With: , ,

Nokia Posts $1.38 Billion Loss in Fourth Quarter

January 26, 2012 by Leave a Comment
Opinion »

Campaign Stops: Gingrich Offstage

Newt Gingrich likes the “elite media” more than he lets on.

Article source: http://www.nytimes.com/aponline/2012/01/26/business/AP-EU-Finland-Earns-Nokia.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Verizon Posts Loss on Pension Charges

January 24, 2012 by Leave a Comment

Verizon Communications reported a net loss of $212 million in the fourth quarter of 2011, despite rising iPhone sales, compared with net income of $4.7 billion in the same quarter a year ago, the company said Tuesday.

The loss was primarily because of the impact of previously announced noncash pension charges, the company said.

The company said that revenue climbed 7.7 percent, to $28.4 billion in the quarter, from $26.4 billion in the same quarter a year earlier.

Adjusted for the pension charges, the per-share income was 52 cents, just below the expectations of Wall Street analysts of 53 cents a share. Revenue was right in line with forecasts, according to a survey of analysts by Thomson Reuters.

“Verizon finished 2011 very strong, both in terms of revenue growth and by delivering an 18.2 percent total return to our shareholders for the full year, and the company has great momentum for 2012,” said Lowell McAdam, Verizon’s chief executive, in a statement.

The company, based in New York, said that it sold 4.2 million units of Apple’s iPhone 4S since its release in October.

However, profit margins dropped due to the high subsidies that Verizon must pay for each new iPhone purchased by customers when they commit to a two-year contract.

Wireless carriers subsidize a part of the retail price on most new cellphones in order to attract customers. However, the companies eventually recoup the costs over the duration of a phone’s two-year contract through monthly cellphone bills.

Verizon said this week that it had a large lead over its rival ATT in the race to build out a newer, faster network called 4G Long Term Evolution, or LTE. The company now has the LTE technology deployed in 195 markets, compared to ATT’s 26 markets.

Article source: http://feeds.nytimes.com/click.phdo?i=cbf38fc8b376196b6de72a75996d0d67

Filed Under: Business News Tagged With: , ,

DealBook: Morgan Stanley Reports a Loss as Settlement Weighs on Results

January 19, 2012 by Leave a Comment

Morgan Stanley's headquarters in Manhattan.Scott Eells/Bloomberg NewsMorgan Stanley‘s headquarters in Manhattan.

Morgan Stanley, hit hard by a big legal charge and a difficult economy, swung into the red in the fourth quarter, reporting a loss of $275 million.

The loss of 15 cents a share compares with a a profit of 42 cents a share in the quarter a year ago, but is better than a loss of 57 cents that was expected by analysts polled by Thomson Reuters. Morgan Stanley last posted a loss in the second quarter of 2011.

Despite the loss, the bank’s chief executive. James P. Gorman struck a positive note in the earnings release, saying that Morgan Stanley ended the year “in better shape” than where it started and dealt with a number of outstanding legacy and strategic issues that had been dogging it.

The firm took a one-time $1.7 billion charge related to a legal settlement with bond insurer MBIA, which weighed on the results for the quarter. The charge accounted for a loss of 59 cents a share.

Fourth-quarter revenue in institutional securities fell 42 percent to $2.07 billion. One number that stood out in the institutional securities division was its compensation ratio. It came in at $1.6 billion, 75 percent of net revenue. The number is high because it includes the MBIA settlement. If that is removed the number drops to a more normalized 41 percent.

Asset management reported a sharp drop in revenue, falling to $424 million for the period, down 50 from the year-ago period. Morgan Stanley attributed the drop to lower gains on investments it has made in its merchant banking and real estate investing businesses.

The one main bright spot in the quarter was the firm’s global wealth management division. It posted net revenue of $3.25 billion this quarter, down just 3 percent from the year-ago period. The division had $1.6 trillion assets under management in the quarter, unchanged from the previous quarter.

All told, the firm logged net revenue of $5.71 billion in the quarter, down 26 percent year the year-ago period.

Morgan Stanley also announced that it has set aside $16.4 billion in 2011 to pay its employees, 51.2 percent of its net revenue. In 2010, Morgan Stanley paid $16.05 billion to employees, which also came to roughly 51 percent of its revenue. This year, with money tight, Morgan Stanley, as previously reported, decided to cap all cash bonuses at $125,000 for the year.

Morgan Stanley, like its rivals, is trying to navigate its way through the current difficult economic environment, which is exasperated by a tighter regulatory regime that has forced firms to hold more capital against certain operations and out of other businesses altogether.

On Wednesday, Goldman Sach, said its profit in the fourth quarter was $978 million, ahead of analyst expectations but still muted compared with its historical earnings power.

Yet Morgan Stanley was hit harder by the credit crisis than Goldman Sachs and Mr. Gorman has spent the last two years rebuilding the firm. He has reduced the risk in some divisions and focused a lot of his energy building out Morgan Stanley’s wealth management division, which is a lower risk operation that has the potential to deliver steady returns

Morgan Stanley on Wednesday also declared a quarterly dividend of 5 cents a common share.

Article source: http://dealbook.nytimes.com/2012/01/19/morgan-stanley-reports-a-loss-as-settlement-weighs-on-results/?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

DealBook Column: A Paradox of Smaller Wall Street Paychecks

January 10, 2012 by Leave a Comment

Robert F. Greenhill, head of Greenhill Company. The company has pledged to reduce its compensation-to-revenue ratio.Joe Tabacca for The New York TimesRobert F. Greenhill, head of Greenhill Company. The company has pledged to reduce its compensation-to-revenue ratio.

Is Wall Street cutting bonuses enough?

That is a question worth considering amid chatter that investment banking bonuses are expected to be the lowest they have been since 2008 amid lackluster profits.

Few people outside the industry are shedding tears. The average Goldman Sachs employee was paid $292,397 in the first nine months of 2011, down about 21 percent from the same period in 2010, when the average payout was $370,056. That is of course, an average, and includes the salaries of those on the lower scales, like support staff.

Each Goldman partner is still expected to take home at least $3 million; in previous years, payouts twice that amount were considered common for the top echelon.

While the total compensation reported by big banks in their 2011 results may be lower, keep an eye on another, and perhaps more important, yardstick that is likely to increase at some firms: the compensation-to-revenue ratio.

DealBook Column
View all posts

At Goldman Sachs, for example, compensation as a percent of firm revenue is expected to rise to 44 percent in 2011, from 39.3 percent in 2010, according to Mike Mayo, a bank analyst with the brokerage firm CLSA. The firm’s revenue is expected to drop about 22 percent and its profit is expected to fall 7.2 percent. Its shares have fallen 45 percent in the last year.

At firms like Morgan Stanley, where share prices tumbled 43 percent in the last year and pretax charges worth $1.8 billion are expected to be booked for the fourth quarter, the compensation-to-revenue ratio is also expected to jump higher. In its 2010 fiscal year, its investment bank paid out 50.7 percent of revenue in compensation.

It is an odd Wall Street paradox: in down years, a higher percentage of a firm’s revenue is paid to employees.

“In the tug of war between employees and shareholders, the employees are winning,” Mr. Mayo said. He pointed out that it was still often employees in the upper ranks, including those in the C.E.O. suites, who took home the largest share of the compensation. “Wall Street has its own 99 percent and 1 percent,” he said. “The 1 percent continues to win against the 99 percent.”

He continued: “Is the incentive pay an incentive, or is it an entitlement?”

For the last several years, while recovering from the financial crisis, the biggest investment banks have tried to reduce the percentage of revenue they have paid employees, bowing to investors and regulators. Until just recently at Goldman Sachs, for example, about half of revenue was used to pay employees.

“You used to be able to set your watch by that 50 percent,” said Glenn Schorr, a banking analyst with Nomura Securities. Now, however, the compensation ratio is expected to rebound somewhat. “It’s a tough balancing act, especially as revenues are down.”

Bank executives have long said that they must pay a larger slice of a shrinking pie in bad times to retain their top people. In a bad environment for the entire industry, it remains unclear exactly where all these people would go.

Firms say that their greatest assets are not factories, equipment or intellectual property but the people who ride their elevators everyday. And in fairness, when revenue jumps at Wall Street firms, compensation has not always kept up.

The compensation-to-revenue ratio may be particularly difficult to calculate in 2011 because of an obscure accounting maneuver called debt valuation adjustment. Under it, firms have posted revenue gains in 2011 based on the deterioration of their credit quality. (The explanation for this is so convoluted that it’s best saved for another column on another day.)

Still, investors will keep their eyes peeled for that number. Nelson Peltz, the activist investor who runs Trian Partners, wrote a scathing letter to State Street’s board late last year, questioning the payout as measured against earnings per share.

He contended that State Street in 2010 “paid more in compensation than in any year other than 2008 but generated the lowest E.P.S. in its recent history. Shareholders have subsidized these increases in employee compensation.”

One firm that has been under the spotlight for its compensation ratio is Greenhill Company, a boutique advisory firm whose stock has declined 52 percent in the last year. It could be considered a case study in out-of-control compensation costs in bad times.

In the first quarter of 2011, Greenhill spent 75 percent of its revenue on compensation and benefits. In 2010, the firm spent 57 percent of its revenue on compensation, in part because the firm aggressively recruited talent after the financial crisis.

Greenhill has since pledged to reduce its compensation-to-revenue ratio. But the firm is likely to struggle to bring the number down to any semblance of a reasonable level anytime soon. The firm was expected to book about $16 million to $18 million in fees from its advisory assignment for ATT’s planned acquisition of T-Mobile USA, a merger that has since collapsed.

Lazard, under Bruce Wasserstein, paid as much as 74 percent of its revenue in compensation in 2004, the year before it went public.

At the time, the firm pledged to bring its compensation-to-revenue percentage down to 57.5 percent, but it has taken years for it to bring that number in line with its peers. For example, the firm paid out about 80 percent of revenue in 2009, in part because of a balloon payment it made to the Wasserstein estate after Bruce Wasserstein died.

Compensation as a percentage of revenue most likely won’t reach those levels again anytime soon. But in the long march toward lower payouts on Wall Street, this year may represent a detour.

Article source: http://feeds.nytimes.com/click.phdo?i=cb16cf208d088b340d3768a99be58117

Filed Under: Business News Tagged With: , ,
« Previous Page
Next Page »