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Wall St. math: Less in bonus pool + fewer bankers = more

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Wall Street bankers still rake it in Bankers still working on Wall Street may be in for higher bonuses this year because the exodus of their colleagues means fewer people sharing the money.

Indeed, this could be the second-best year for profits among the firms in New York City even though the U.S. economy is limping, according to data released by New York State Comptroller Tom DiNapoli.

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"Wall Street profitability rebounded sharply in 2009 to a record $61.4-billion - three times greater than the prior record - as a result of federal government assistance," according to the report yesterday from Mr. DiNapoli.

"Industry profits totalled $21.4-billion through the third quarter of 2010, exceeding the city's estimate for the entire year ($20.6-billion). While industry profits in 2010 will be much lower than 2009's super-sized level, profitability would still be the second-highest on record."

Mr. DiNapoli noted that bonuses paid on Wall Street last year climbed 17 per cent to $20.3-billion. But thousands of jobs have disappeared, and regulatory reforms have changed the nature of compensation.

"Given compensation and revenue trends so far this year, it appears the cash bonus pool will be smaller than last year, although the average bonus may be somewhat higher since it will be shared among fewer workers," the report said.

European leaders meet Europe's leaders are meeting today as a deeply divided group and under intense pressure to reassure markets.

The meeting comes amid a backdrop of violent protests in Greece and Spain's test of the bond market, which wasn't stellar.

One day after Moody's Investors Service warned it could cut Spain's credit rating, the country's final bond sale this year raised less than expected - €2.4-billion - at higher costs.

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"That's hardly a failed auction, but not a great success either, particularly after considering the cost," said Scotia Capital economists Derek Holt and Gorica Djeric.

"The 10-year cleared at 5.45 per cent for a rise of over 80 basis points since the November auction, and the 15-year issue cleared at 5.95 per cent for a rise of about 140 basis points over the October auction. In the secondary market, the yield on Spanish 10s is once again closing in on the high of 5.67 per cent set on Nov. 30 and currently sits at 5.53 per cent."

The hefty premium reinforces fears that the raging debt crisis isn't taking a break any time soon, Globe and Mail European correspondent Eric Reguly writes.

At the European table, Germany is holding fast, not wanting to boost the size of the euro zone rescue fund, given how much of the bill it foots, and opposing a push for a joint European debt initiative.

"Germany's insistence that the bailout fund should remain at €750-billion, with no increase suggested that political division was still the order of the day within Europe, though the Germans did hint that the [European Central Bank] could well be provided with more capital to help purchase peripheral bonds, as it starts to run out of money," said CMC Markets analyst Michael Hewson.

"... The start of today's European summit will be overshadowed by Angela Merkel's starting position that 'strict conditions' will be tied to any sort of aid for countries requiring help under a planned permanent rescue system that leaders are set to discuss from 5 p.m. today, with Merkel opposed to the idea of euro zone bonds which would put German financing costs up, putting her at odds with Luxembourg PM and euro group chairman Juncker."

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U.S. deficit swells The U.S. current account deficit got even heftier in the third quarter, swelling to $127.2-billion (U.S.), the fattest in almost two years.

Current account balances are the broadest measures of trade, and are a hot issue in global growth.

The deficit was fuelled by surging imports, which, at least, shows Americans spending.

Weston unveils special dividend Shareholders of George Weston Ltd. are celebrating today after the company's announcement late yesterday of a $1-billion special dividend.

That's worth about $7.75 a share for a yield of 9.7 per cent, hefty compared to the annual dividend of $1.44, Streetwise columnist Tim Kiladze writes.

Transat profit jumps Well, at least someone's having fun. Transat A.T. Inc. says it had its best summer ever as more people took holidays, boosting the travel company's fortunes.

Revenue in the fourth quarter climbed to $778.6-million from $719.7-million, Transat reported today, while profit surged to almost $52.4-million, or $1.37 a share, from $18.1-million, or 52 cents, a year earlier.

"The summer of 2010 was our best ever, as our teams were able to generate excellent load factors on the transatlantic market, allowing us to offset the results recorded last winter, which had been difficult," said chief executive officer Jean-Marc Eustache.

The transatlantic market remains "quite lucrative" for Transat, said Desjardins analyst Martin Landry.

"Management did not make any specific forecasts for the winter season, but indicated that its capacity is up roughly 13 per cent year-over-year, and bookings and load factors are currently higher year-over-year," Mr. Landry said.

"Management also commented that prices are similar to last year, which is quite reassuring as this was a major area of concern for us, given the significant over-capacity to sun destinations from Canada. However, we note that these indications could change dramatically between now and when Transat reports its [first quarter of fiscal 2011] results, given the highly competitive nature of the market, combined with excess capacity."

Boyd Erman's Morning Meeting Boyd Group Income Fund , which runs auto body shops across North America, is managing something that will make most trust investors green with envy, Streetwise columnist Boyd Erman reports today.

Instead of converting to a corporation and cutting distributions ahead of the end-of-year imposition of a new tax on trusts, as so many trusts are doing, Boyd has found a way to restructure, stay a trust and increase distributions.

Today in Your Business

There is an exodus in Canada's public service, with more than a quarter of civil servants retiring or preparing to leave jobs within the next few years. But what's causing grief for government managers is creating big opportunity for entrepreneurs.

Claire Hutchings and Tyler Quantz, owners of Vancouver's Dilly Dally toy store, wanted to build a space where kids could "create, build, imagine and dream" (their slogan is "Inspiring play" ). It's quite a different venture from their first one, a whimsical bar in the Downtown Eastside.

It's hard to see – if you look strictly at the numbers – how Groupon could be worth the $6-billion Google was rumoured to have offered the company. Why would Google offer more than 10 times revenue for a two year-old company in a category with virtually no barrier to entry?

From today's Report on Business

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About the Author
Report on Business News Editor

Michael Babad is a Report on Business editor and co-author of three business books. He has been with Report on Business for several years, and has also been a reporter and editor at The Toronto Star, The Financial Post and United Press International. His articles have appeared in major newspapers around the world. More

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