EmploymentBrett Philbin reports:

The financial crisis could lead to 225,000 job cuts and the loss of $6.5 billion in securities industry-related tax revenue in New York over the next two years, according to report issued Monday by the state comptroller’s office.

With massive writedowns and credit losses, consolidation, and downsizing in the financial services industry, the report also forecast a steep decline in Wall Street bonuses.

“Wall Street is the engine that drives the economies of New York state and New York city, but the global credit crunch has slowed that engine down,” New York State Comptroller Thomas DiNapoli said in a statement.

Through the first half of 2008, broker-dealer operations of New York Stock Exchange member firms reported a loss of nearly $21 billion, the report said. Over the past year, the securities industry in New York City has lost 16,300 jobs, according to the report. Mr. DiNapoli predicted that the securities industry could lose 38,000 jobs by October 2009 and another 10,000 could be lost in banking, insurance and real estate.

The Comptroller’s office estimates that total private sector job losses could reach 175,000 in New York City but losses could be greater if the economic downturn is deeper and longer than currently forecast. While Wall Street bonuses fell by nearly half in the two years following the
burst of the dot-come bubble, the report expects a similar decline for 2008.

Mr. DiNapoli stressed that top executives should forgo bonuses during the difficult time period, saying “it’s inappropriate to reward poor performance.”

Seven top executives at Goldman Sachs Group Inc., including Chief Executive Lloyd Blankfein, have already decided to do without their 2008 bonuses. Citigroup Inc. agreed to “comply with enhanced executive compensation restrictions,” as part of the government’s plan to rescue the banking giant by helping to absorb potentially hundreds of billions of dollars in losses on toxic assets on its balance sheet and injecting fresh capital into the troubled financial giant.

Mr. DiNapoli added that bonuses paid to lower level employees are often used to purchase goods and services in other industries, which benefits the overall economy. The report estimated that tax collections, both personal income and business taxes, from Wall Street-related activities could drop by $4.5 billion for New York state and $2 billion for New York City by 2010. Wall Street-related activities account for 12% of New York City tax revenues and up to 20% of New York state revenues.