Sunday, February 25, 2007

Bling Budget for Wall Street Investment Bankers to exceed more than $200,000 this year

In a report in the Wall Street Journal's Wealth blog, Robert Frank writes that late last year, Manhattan jeweler Ruedigar Albers sold a $31,000 Patek Philippe watch to an investment banker who'd just closed a big deal. The banker liked the watch so much he placed an order for another one on the spot -- saying he might give it to a colleague.

"Wall Street bankers have become big repeat customers," says Albers, president of Wempe USA, which sells watches and jewelry. "Morgan Stanley, Lehman, Goldman Sachs, Bear Sterns -- they're all coming in."

Frank reports on a survey of more than 200 Wall Street professionals who took home at least $2 million in cash from their 2006 bonuses, respondents are spending 11% of their payouts, on average, on watches and jewelry. For even the lowest-paid bankers in the survey, that's a bling budget of more than $200,000.

Although the poll by wealth-research firm Prince & Associates of Redding, Conn., is only a sampling of the Street, Frank says that it adds to growing signs of an entirely new level of consumption there. Last year, Wall Street bonuses jumped an average of 15% to 20%, meaning that the senior bankers with the title of managing director received average pay of between $2.2 million to $3.8 million, according to the Options Group, a New York consulting firm.

Overall, according to an estimate released by New York State, Wall Street will pay a record $23.9 billion this year in bonuses.

Frank says that bankers' spending -- what they call their "burn rate" -- is growing as fast as their bonuses. While the national real-estate market is suffering, multimillion-dollar homes continue to trade briskly in the Hamptons and Manhattan. Art prices keep soaring, and the Armory Show in New York this weekend is sure to bring crowds of bankers looking for the next Chuck Close or Richard Prince. Wine purveyors are drunk with delight as financial types fork over $345,000 for a case of 1945 Mouton Rothschild.

Prince & Associates worked through six large investment banks to set up interviews with top earners; about 8% of the respondents were women. Participants reported how much they had spent and how much they'd budgeted for purchases. The researchers added unearmarked funds to the savings-and-investing category.

The Street crowd is spending the biggest share of its bonuses on homes, especially second or third ones: Some 16% of last year's bonuses went toward purchasing residences, with another 10% going toward home improvements. Respondents say they're spending about 12% of their money on fine art and collectibles, while 14% went toward "other" -- a category that includes hobbies such as horses and flying lessons, as well as "mistresses and other lovers."

The average amount diverted to savings and investments, meanwhile, is 16.5%. "What surprised me is the low savings and investing rates for people who are making millions of dollars a year," says Russ Alan Prince, president of Prince & Associates. "This says to me that Wall Street expects the good times to continue."

Nearly three-quarters of the Wall Streeters surveyed said they expect business in 2007 to be "excellent." Most expect bigger bonuses for this year.

Robert Frank writes that since so many of today's top deal makers and proprietary traders are in their 30s or early 40s, they figure they have plenty of time to save and invest. And so, they say, they'd much rather spend.

One banker say today's free-spending Wall Streeters could be headed for a fall. "Some of this generation of bankers are in la-la land," says Peter Solomon, chairman of investment-banking firm Peter J. Solomon Co. of New York, as reported by the Journal. "This is a cyclical business. We're in a period of easy credit and people throwing money around, and no one in investment banking should assume that next year will be better than last year."