Pity the poor investment bankers that may no longer be in the 1%
The current global economy coupled with Dodd-Frank requirements are taking its toll on the compensation of Wall Street professionals.
Investment banks historically earn significant profits from their proprietary trading desks. The Volcker Rule, part of the Dodd-Frank Act, expressly requires limitations on prop trading activities.
In response to the Volcker Rule investment banks have been pruning or closing certain trading desks to comply. Numerous high-profile successful traders have left senior level trading positions for hedges funds in anticipation of the potential draconian measures that will be instituted and the resulting drop in their status and compensation.
Dodd Frank additionally calls for curbs on an investment bank’s in-house hedge fund business. Also, in response to the financial crisis, banks are required to hold onto the cash and set int aside for a rainy day rather than place it into more profit generating areas.
The direct result, according to Fortune magazine, is that investment banking compensation will fall. For example, Goldman Sachs average employee compensation is likely to drop by nearly $100,000 due to new regulations, lighter deal flow and other factors.
Last year, the average pay per employee at Goldman was $412,000. This year it is anticipated to be $314,000.
According to statistics, to classify as being part of the top 1% a person should earn $368,000.
Alas, there will be a large swath of investment bankers falling out of the 1%.
Don’t worry, they still will qualify for the top 2 or 3%. Although, by Wall Street status standards, it represents the difference between summering in the Hamptons and busing it to the Jersey Shore with Snooki.