[Vcwdldva]

Troubled Outlook for New York City Economy Turns a Lot Grimmer


nytimes.com
By PATRICK McGEEHAN
Published: March 18, 2008


The outlook for New York City’s economy and its main engine, the financial services industry, had already taken a bleak turn before the sudden failure of Bear Stearns, the fifth-largest firm on Wall Street.


Investment banks and brokerage firms started cutting their payrolls last fall as the weakening market for mortgages translated into huge losses.

Employment in the city’s securities industry dropped by about 8,000 jobs from August to January, a decline of about 4 percent.


Now, with the impending loss of several thousand high-paying jobs at Bear Stearns, city officials and economists are bracing for the downturn to steepen. How deep it will be and how long it will last are open questions.
“Who knows?” said William C. Thompson Jr., the city’s comptroller. “We had been preparing for tougher times. This means things are going to get a little tougher. We just don’t know how many jobs are going to be lost because of this.”


Bear Stearns had about 14,000 employees, and as many as 8,000 of them worked in the city. Last year, those workers collected more than $3.4 billion in pay and benefits, or an average of about $242,000 per employee.
Bear Stearns was one of the 25 largest employers in the city and accounted for about one of every 25 jobs in the city’s securities industry.



It was not the first major Wall Street firm to collapse. Drexel Burnham Lambert and Kidder Peabody fell more than a decade ago. But Bear Stearns was a bigger component of a more consolidated industry.


On Monday, officials of JPMorgan Chase, which agreed to buy Bear Stearns and stave off a bankruptcy, declined to estimate how many of the jobs would be saved. But representatives of the firm did not dispute reports that the sale would probably result in the elimination of most of them.
Already, the rescue has implications for the redevelopment of Lower Manhattan. JPMorgan announced last year that it would build a headquarters for its investment-banking operations at the site of the former Deutsche Bank building, where there was a deadly fire last year.
But JPMorgan officials have now decided to move that unit instead to Bear Stearns’s glass tower in Midtown Manhattan. Government officials who were briefed on the revised plan said on Monday that they expected JPMorgan to honor its commitment to the World Trade Center area by moving other employees there.


The comptroller’s office estimates that the city collects $20 million in taxes for every $1 billion paid out in cash bonuses. In 2007, year-end bonuses for city residents totaled about $30 billion, producing about $600 million in income tax revenue for the city.


A significant drop in profits on Wall Street has a direct and possibly painful effect on the city and state budgets.
“New York City and state are over-dependent on the financial industry for tax revenues,” said Kathyrn S. Wylde, president of the Partnership for New York City, a business-advocacy group. She estimated that Wall Street accounts for one-fifth of the business taxes collected in New York.
“Even a mild downturn on Wall Street causes tremendous problems, and this is much more than a mild downturn,” Ms. Wylde said. “This is potentially a sustained period of significant losses. That translates into the need to significantly revise budgets.”


Even generally optimistic financial executives like Alan H. Fishman, the chairman of Meridian Capital, a mortgage broker, said they were unsure how long it would take the city to absorb the latest blow.
“Nobody’s ever seen something like this,” Mr. Fishman said, referring to the fallout from the mortgage mess. “If you’d asked everybody how serious this was two weeks ago, they would have said, it’s serious but it will pass. Now they would say it’s very serious.”


Two weeks ago, before Bear Stearns’s solvency was in doubt, the city’s Independent Budget Office forecast that Wall Street would cut an additional 20,200 jobs in the city by the end of 2009. It also projected a decline in business taxes collected by the city from $6 billion last year to $5.6 billion this year to $5 billion next year.


Mr. Thompson, the comptroller, said that projections of overall city revenue being flat in the first half of this year may turn out to have been too rosy.
“No matter what, looking forward, you’re not going to have a Bear Stearns to be able to grow,” he said. “We’ll have one less major firm, and that is an additional concern on top of everything else.”