Tell-Tale Signs Wall Street Spending is Back

February 22, 2011

GDC was interviewed and quoted for this piece - an interesting update on the state of the not-so-micro Wall Street economy.  From the article..."Noah Lehmann-Haupt, CEO of Gotham Dream Cars -- an exotic-car rental company whose showroom features Ferrari, Lamborghini, Bentley, Aston Martin and Maserati -- says his company has seen customers who come to him for a 'test drive approach' for some of the exotic cars they have had their eyes on..."

Tell-Tale Signs Wall Street Spending is Back


By Joe Mont

BOSTON (TheStreet) -- Back in October, a party thrown by a top Goldman Sachs(GS) investment analyst included the performer Lil' Kim dressed in a black cat costume. A few weeks later, a since-fired Morgan Stanley(MS) trader drew gossipy fire when he hired a dwarf to be handcuffed to the guest of honor at a bachelor party.

Those two events may not rise to the scandalous level of excesses seen in the 1980s. That they drew considerable media scrutiny, however, reveals two things: that the general public is still ready to pounce at any display of post-bailout lavishness by Wall Street executives; and, those feelings notwithstanding, those executives are growing tired of not flaunting their wealth.

According to an annual compensation report by Johnson Associates, a New York-based compensation consulting firm, most Wall Street professionals were in line to get at least a 15% bonus based on their salary. Fixed-income and equities traders at investment and commercial banks will be in the 20% range (dropping from 40% last year) due to a midyear slowdown.

Even if bonuses aren't as high as last year, there is still plenty of money being doled out. Bonuses at publicly traded banks, for example, averaged about $141,000 per employee, totaling more than $135 billion.

The next few weeks -- as all those recently received bonus checks are put to work -- may reveal to what degree recession-fueled frugality (such as it is for high earners) is giving way and keeping money on the sidelines for the sake of appearances becoming less important than that flashy new car, $100 steak or vintage wine. The following are some indicators Wall Street spending is ready to roar back:

Raising the ceiling

Though other economic forces are also at work, Wall Street's bonus money and boosted compensation are having an impact on Manhattan real estate.

"There was talk of bonuses not being good this year, at least for the middle level of Wall Street," Says Lisa Lippman, a senior vice President at Brown Harris Stevens specializing in luxury co-ops and condos. "One would think that means that the under-$4 million market would be affected poorly. What's odd, however, is that in the last month there has been craziness in that market, especially on the Upper West Side and downtown. The under-$4 million market is really, really strong, and kind of flies in the face of that whole middle level Wall Street thing."

"We just don't have enough good three- to four-bedroom apartments under $4 million," she adds. "If you have a well-renovated one, it will fly in a week. I put something on the market last Thursday for $2.7 million, a three-bedroom, 2,100-square-foot, and I had multiple bids and it went well over ask by Tuesday in less than a week ... I think people received their bonuses and, whether bigger or smaller, they got their money and feel like it's a good time to buy."

The over-$5 million marketplace is also starting to heat up, she says, even though there are fewer buyers in this category and a smaller inventory to choose from.

"The fall was very, very busy for that higher end," she says. "I did a lot of deals north of $7 million in the fall, before it slowed down a little bit in January."

Compensation packages may be playing a role, especially given the timing of the uptick.

"Sometimes the higher-income-end category finds out about bonuses and what they are going to be earning a little bit earlier than that middle level who never knows until they are told," Lippman says.

"I think everybody is looking for great value and they realize that the market has stabilized," says Karen Mansour, director of sales and marketing at Prudential Douglas Elliman Developments, the exclusive sales and marketing firm for the luxury development Azure. "So for those Wall Streeters who have gotten a sizable bonus, coupled with prices stabilizing and value, we've seen a great uptick in traffic for larger apartments especially."

Her colleague, Charles Russell, vice president at Douglas Elliman Developments, says buying behaviors have evolved in recent years.

"Post-Lehman Brothers, we are in a different world," he says. "These bankers with these huge bonuses are out shopping, but they are really thinking hard and coming back to a site two or three times. In the old days they would just write the deposit check at the first visit."

Bargain hunting may be only part of the reason.

"They also want to be slightly under the radar," Russell says. "The whole flashy purchase thing is a mental thing. Three, four, five years ago, they would go out, buy a $3 million apartment and at the same time buy a brand-new Porsche 911 or whatever. Today they are really thinking about it. They don't want to be the flashy banker."

Books not Botox

Manhattan Realtors attest that the most in-demand properties are often units with three or four bedrooms.

Mansour says this is an indication that more professionals are choosing to raise their families, or planning for one, while staying in the city.

"People work longer and longer hours, so the idea of commuting is less and less appealing," she says. "I think historically people felt city schools were bad and that suburban schools were good. That has changed."

Mansour praises the improvements at many public schools and the innovations at charter and magnet schools.

For those who want an alternative, however, growing families will mean more spent on private schools.

That means many young, up-and-coming professionals on Wall Street will be taking a pass on more opulent pursuits and vanities and instead be spending on education, with many top private schools commanding $25,000 to $40,000 a year in tuition.

Hitting the right note

There may be no interior accoutrement as impressive as a grand piano, and a company synonymous with these opulent instruments is Steinway.

Anthony Gilroy, director of communications for Steinway & Sons(LVB), says the company's core audience has always been serious musicians, music schools and teachers. A share of its annual sales, however, is attributed to luxury consumers.

"2009 was a very difficult year for us and the piano industry as a whole," Gilroy says. "We definitely see it as a top-end kind of a luxury product, and the numbers went from probably 2,000 grand pianos from this factory in New York to under 1,000 within a year. It is a very big purchase, and it is one of those things where it is not an impulse purchase. It is something that people plan for, so when the economy does hit a rut, people make that purchase later."

Historically, Steinway has seen sales shoot up after a recession, Gilroy says.

"This time around it is a little bit different," he says. "We haven't seen the huge recovery spike, but we have seen an uptick. It is more of a creeping rebound than a springboard rebound. We did see some recovery happen in 2010, and we are hoping for the same in 2011."

To what degree will Wall Street's bonuses help Steinway's recovery?

"That's definitely affected us to some degree," Gilroy says. "People with that kind of expendable income, getting those kinds of bonuses, are more likely to buy a Steinway even if they are not a serious musician ... Of the percentage that we lost, you could probably attribute some of that to things like those Wall Street bonuses not being there."

Piano sales may also go hand in hand with the Manhattan real estate market and, as Wall Street executives plunk down millions for more spacious living spaces, the space needed for a grand piano.

"As more new houses and large condos are being sold, they are potential piano customers," Gilroy says.

The drive for success

Hand the typical middle-aged man an extra hundred thousand dollars or so in bonus money and it would be shocking if the thought of buying a luxury or sports car didn't at least cross his mind.

With a "found money" mentality about extra compensation, splurging on a Lamborghini, Porsche, Bentley or Mercedes-Benz is hard to resist. For the top of the food chain, an extra few million in the bank account can even steer them to such icons as a Bugatti or Rolls Royce.

As part of its tradition of selling one-of-a-kind luxury items every Christmas, Neiman Marcus offered 100 limited-edition Cheverolet Camaros, each priced at $75,000. It took three minutes to sell out.

Auto dealerships in Manhattan and Greenwich have reported an uptick in sales and growing waiting lists for in-demand limited editions and imports.

Noah Lehmann-Haupt, CEO of Gotham Dream Cars -- an exotic-car rental company whose Manhattan showroom features Ferrari, Lamborghini, Bentley, Aston Martin and Maserati -- says his company has seen customers who come to him for a "test drive approach" for some of the exotic cars they have had their eyes on.

"They want to try out a vehicle for an extended period of time before purchasing from the manufacturer," he says. "For example, we were the first rental company to offer the Ferrari 458 Italia, and since the vehicle has a lengthy wait list, we've had many customers who have taken the opportunity to rent it from us to experience it."

Wall Street's rebound has been a boon for his company.

"We are seeing an increase in business from wealthy customers who have bonuses or extra income that they're comfortable spending now that the economy is on the uptick," he says. "Among a certain population of our customers who rent more regularly, there is less of a negative feeling about spending on luxury items -- they are more comfortable using [that money] to drive the car they've always wanted."

The two-wheeled variety of vehicles also saw a comeback last year.

Italian motorcycle maker Ducati's North American subsidiary announced what it termed "a tremendous close to 2010," posting retail gains of 35% in December over the same period in 2009. Adding to its cache: A Ducati was prominently appeared in the film Wall Street: Money Never Sleeps, a response perhaps to its "gotta have it" status among more adventurous Wall Streeters last year.

For art's sake

As it was last year, spending on fine art will likely be part of the budget for anyone with money to burn in the financial world.

Beyond supporting local galleries and the artists they feature, many will continue to seek out the global marketplace for investment opportunities. Sergey Skaterschikov, founder of Skate's Art Market Research, says this year could exceed the more than $3.6 billion in trading volume tallied last year among what his firm gauged as the top 5,000 most valuable pieces. His prediction for the coming months is that photography -- prints, negatives and collections -- will experience a surge in trading volume and prices.

Whether Wall Street executives once again take to decorating their offices with millions of dollars of paintings and sculptures remains to be seen and, perhaps, a true test of whether big-time spending is back in unrepentant fashion.

Bling and fashion

Designer clothes, high-end accessories, jewelry and watches are among the items Wall Street professionals are expected to spend more on throughout this year, building upon what was spent the previous year.

Sales of such items were up 12% in the U.S. and, globally, spiked 10% last year to $236.7 billion, according to Boston-based analyst Bain & Co. in its annual review of the luxury sector.

U.S. jewelry sales, which had languished during the recession, have bounced back. According to the U.S. Commerce Department, sales rose to a record $63.4 billion last year after drops the previous two years.

High-end retailers have had a good run. Tiffany(TIF), a company nearly synonymous with high-end jewelry, reported that its worldwide net sales in the two-month holiday period ending Dec. 31 rose 11% over the prior year. Sales at its New York flagship store were up 3%.

LVMH -- whose stable of luxury items includes Louis Vuitton, Fendi, Hermes, Hennessy, Moët Chandon and TAG Heuer -- saw profits soar 73% last year, with revenue rising 13% in its last quarter.

More mainstream retailers also had a good holiday season thanks to high-end goods. Coach(COH) announced sales of $1.26 billion for its second fiscal quarter ended Jan. 1, an increase of 19%. Signet Jewelers(SIG) announced same-store sales for the nine-week "holiday season" were up nearly 12%.

Under the knife

Wall Street executives can be a looks-obsessed bunch, for themselves and their arm candy. That meant more spending on plastic surgery last year and more to come in the year ahead.

"The economy is showing signs of improvement and, financially, things are a little better for people this year," says Dr. Phillip Haeck, president of the American Society of Plastic Surgeons. "As the aging population continues to grow, people are investing in plastic surgery procedures to help stay competitive in the workplace."

"There's some pent-up demand for cosmetic surgical procedures," he adds. "People have waited a couple of years or more to have procedures until their finances were at least somewhat back in order."

Nationally, cosmetic surgical procedures increased 2%, with nearly 1.6 million procedures last year. The top five were: breast augmentation (296,000 procedures), nose reshaping (252,000), eyelid surgery (209,000), liposuction (203,000) and tummy tucks (116,000).

Naked short puts

One rather scandalous gauge of Wall Street spending often goes hand in hand with the uptick in plastic surgery. Sure, prostitution of high-end, Elliot Spitzer quality may always be in demand, but when there's so much extra money to blow, the world's oldest profession can still be an economic indicator.

There is, of course, no inventory, 10k filing or professional association to use as a metric of call girl supply and demand. So keep an eye peeled to police logs and the occasional executive slip-up to give a peek into this underground economy, as was the case in 2009 when testimony from "madam" Kristin Davis offered up a long list of Wall Street professionals documented as having spent $2,000 or more a night on a stable of 100 women, many of them charging the escapades to company credit cards and expense accounts.

-- Written by Joe Mont in Boston.

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