Tighten your Xmas giving this year? Wall Street did NOT.

Big bucks brighten Wall St

Leela De Kretser

December 25, 2007 12:00am

THE gloom and doom that has hung over Wall Street ever since the sub-prime mortgage fiasco cleared in time for Christmas after financial firms doled out holiday bonuses.

Despite fears that the US economy is plummeting into a recession, bankers and traders at the biggest banks and finance companies were able to splurge big for the holidays, safe in the knowledge that bonus cheques on average grew by 14 per cent on last year.

The four biggest banks, Goldman Sachs, Morgan Stanley, Lehman Brothers and Bear Stearns, were estimated to be paying out about $US32 million ($36.8 million) in bonuses, about 60 per cent of the total compensation employees got in 2007.

At the top of the list of trendy gifts that have Manhattanites trying to keep up with each other this year are "once-in-a-lifetime experiences", and "extreme luxury" items on sale at upscale retailers.

A $7700 doghouse at department store Neiman Marcus and a $3 million diamond-encrusted Victoria's Secret bra are among the most lavish. At Saks, the Masters of the Universe wrestled each other for the chance to spend $100,000 on a day at the Super Bowl with an NFL player.

Thanks to holiday bonuses, retailers and restaurateurs in New York enjoyed another happy holiday shopping season as Wall Streeters lapped up the usual high-ticket items of Kobe steaks, diamond jewellery and plastic surgery gift certificates.

But many were treating this Christmas as their last chance to buy.

The healthy size of the bonus cheques was due mostly to record earnings in the first half of the year, before a credit squeeze caused M&A (mergers and acquisitions) activity to almost dry up and many banks were forced to writedown billions of dollars on sub-prime mortgage bonds.

Most analysts predict that the stockings of Wall Streeters will not be so stuffed with cash next year as problems in credit markets and in structured investment vehicles continue to bite at the US economy.

At least half of the analysts polled by Bloomberg believe the US is heading for recession.

Already, some on The Street are feeling the pinch. At investment firm Merrill Lynch, which is expected to take another $6 billion hit to its books due to collateralised debt obligations this quarter, bonuses are likely to be down 40 to 70 per cent when the company makes its offerings in January.

Morgan Stanley CEO John Mack and Bear Stearns chief Jimmy Cayne also announced that they would forego their holiday bonuses this year in light of the banks' problems with investments in CDOs and sub-prime mortgage-backed bonds.

In Battery Park City, however, Goldman Sachs workers were smiling all the way to the ATM machine, celebrating a record $US17 billion in holiday tidings.

Goldman Sachs was the only one of the big banks to correctly predict that the market for reselling sub-prime mortgage loans was about to hit trouble and sell its holdings before the summer hit.

The most generous bonus cheque will be made out to Goldman Sachs CEO Lloyd Blankfein.

The Golden Boy will receive $US70 million extra after he successfully navigated the bank out of mortgage securities.

Goldman has offered a special charitable fund for well-minded workers to donate their holiday bonuses to this year.