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Wall Street turmoil threatens NYC economy

The near collapse of investment bank Bear Stearns, and the wave of layoffs it threatens, could mean hard times ahead for an already-worrisome New York City economy.
Image: Bear Stearns building in New York
The towering headquarters of JPMorgan Chase, right, and Bear Stearns, left, are located near each other in Manhattan. But only JPMorgan Chase will survive after the stunning collapse of  Bear Stearns.Mark Lennihan / AP file
/ Source: The Associated Press

The near collapse of investment bank Bear Stearns, and the wave of layoffs it threatens, could mean hard times ahead for an already-worrisome New York City economy whose survival depends heavily on Wall Street.

For every $1 billion in Wall Street profits, New York City gets $70 million in direct taxes and enjoys even more revenues indirectly from all the money that is spent here.

So alarm bells go off at City Hall, at real estate brokerages, at luxurious restaurants and elsewhere when one of the nation's largest investment banks implodes, as Bear Stearns Cos. Inc. did in recent days before it was absorbed by JPMorgan Chase & Co. in a frantic deal to avoid bankruptcy.

The $260 million sale of Bear Stearns — with its 14,000 employees who own nearly a third of the company — had investors and others worried about which investment bank might be next to fall. Trying to soothe nerves, the federal government offered reassurances that no other financial institutions were on the brink of failure.

Sen. Charles Schumer, D-N.Y., on Tuesday asked JPMorgan to try to soften the economic blow of Bear Stearns' problems by finding a new buyer for the parts of the company that the new owner doesn't want.

"The crisis in the financial and housing markets is hitting New York City's economy particularly hard as a result of the city's stature as a financial center," Schumer wrote to JPMorgan's CEO James Dimon. "The loss of thousands of additional jobs would create serious additional problems to the city's economy."

The turmoil in the markets, including layoffs at financial companies, is already being noticed by businesses that cater to the Wall Street crowd.

Take Gracious Home, for example. Even before the Bear Stearns crisis, the high-end home accessories store that sells door knobs for up to $1,000 each was experiencing a decline in business of 10 percent over the past six months, with sales deteriorating even more in the last few weeks.

"This has rocked the boat," said Carol Kappenhagen, a corporate services manager at Gracious Home.

At Delmonico's, the historic steakhouse a few blocks from the New York Stock Exchange, lunch business has declined anywhere from 15 percent to 20 percent over the last few months, according to Corrado Goglia, general manager.

While Mayor Michael Bloomberg publicly expressed his confidence in the economy on Monday, city officials have been in touch with JPMorgan since the news of the Bear Stearns takeover. Aides say the discussions have centered on potential job losses that might come with the move, as well as JPMorgan's plans for office space.

The short-term situation is grim but not catastrophic, officials said.

"It's not positive," said Robert Lieber, Bloomberg's deputy mayor for economic development who previously served as a managing director in the Global Real Estate Group at Lehman Bros.

"Clearly New York City is significantly dependent on the revenues generated from taxes on Wall Street," he added. "But we've been very focused these past six years looking for ways that we can diversify our economy in ways that complement Wall Street, so that we are in a position to better withstand things like this."

Bloomberg told reporters Monday that he is "very sorry for the people that had investments in Bear Stearns and those people that worked there."

"We're going to do everything we can to help JPMorgan absorb Bear Stearns and keep those jobs and the economic activity in our city," Bloomberg added.

Bloomberg has long been warning of impending economic trouble, even when the city was flush with record surpluses in recent years. The factors that created those windfalls, he has said, were all short-lived good fortunes like taxes from multibillion-dollar real estate transactions and better-than-expected times on Wall Street.

It was too early to tell what effect the Bear Stearns situation would have on the real estate market.

In the luxurious resort area on Long Island known as the Hamptons, where many Wall Street types have summer homes, broker Gary DePersia said the dismal economic news "certainly has had a confidence-shaking effect."

"Whether that lasts a couple of days, a couple or weeks or months, we don't know," said DePersia, senior vice president at East Hampton's Corcoran Group.

But DePersia isn't all that worried. The summer rental season is just around the corner, and he is getting calls from clients who don't seem the least bit concerned about throwing down a quarter-million a month for a beachside pad.

"I just listed a wonderful home for $750,000 for the season, from Memorial Day to Labor Day," he said. "And we have seen interest."