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page B6 www.app.com BUSINESS ASBURY PARK PRESS FRIDAY, JAN. 18, 2008 Record $39B in bonuses handed out by Wall Street firms The industry's bonuses are larger than the gross domestic products of Sri Lanka, Lebanon or Bulgaria, according to data compiled by the U.S. Census Bureau. gan Stanley, Merrill and Bear Stearns, where revenue fell last year, rewarded employees who made money in the first half of the year and who work in fastest-growing businesses by lifting the percentage of revenue they pay in salaries, bonuses and benefits. "A great majority of Merrill Lynch's key businesses delivered record results in 2007," said CEO John Thain, who replaced the ousted Stan O'Neal last month, in Thursday's statement.

"The firm is intensely focused on continuing this momentum and delivering growth and increased profitability." At Morgan Stanley and Bear Stearns, the chief executives sacrificed their own bonuses because their firms made bad bets on subprime mortgage-backed securities. by the U.S. Census Bureau. Shareholders in the securities industry endured their worst year since 2002, as Merrill and Bear Stearns slumped more than 40 percent in New York trading and the chief executive officers at both firms gave up their jobs. Morgan Stanley fell 21 percent and Lehman dropped 16 percent.

Only Goldman rose, gaining 7.9 percent. "Wall Street firms have always been run, and likely always will be run, for the upper-level management, not for the shareholders," said James El-lman, who manages about $200 million, including stock in Morgan Stanley and Merrill, at San Francisco-based SeaCliff Capital. Merrill, the largest U.S. brokerage, posted a record fourth-quarter loss of $9.83 billion Thursday, bringing the net loss for the five firms to $10.2 billion and reducing the combined net income fur the full year to $11.5 billion, the lowest since 2002. Goldman earned $11.6 billion last year, more than the $11.2 billion combined profit reported by Morgan Stanley, Lehman, Bear Stearns and New York-based Citigroup the biggest U.S.

bank. Merrill lost more in the past two quarters than it earned in the previous six. Its full-year loss of $7.8 billion was greater than the firm's 2006 profit. Merrill paid $15.9 billion of compensation and benefits for 2007, exceeding the company's $11.3 billion of revenue. While combined revenue for the five firms dropped 13 percent to $110 billion, compensation and benefits grew 8.7 percent.

The increase in bonus payments was first reported in November by Bloomberg News, which estimated the five firms would pay 6,200 jobs amid mounting losses from the collapse of the sub-prime mortgage market. The payouts come as the U.S. economy slows, with unemployment rising, retail sales declining and new home foreclosures surging to a record. "To many people, it will be shocking and questionable," said Jeanne Branthover, managing director of Boyden Global Executive Search in New York. "People in New York in the world of investment banking will understand it.

It's critical that pay is still there or you're going to lose really good people." The industry's bonuses are larger than the gross domestic products of Sri Lanka, Lebanon or Bulgaria, and the average bonus of $219,198 is more than four times higher than the median U.S. household income in 2006, according to data compiled BLOOMBERG NEWS SERVICE Wall Street's five biggest firms are paying a record $39 billion in bonuses for 2007, a year when three of the companies suffered the worst quarterly losses in their history and shareholders lost more than $80 billion. Goldman Sachs Group Morgan Stanley, Merrill Lynch Lehman Brothers Holdings Inc. and Bear Stearns Cos. together awarded $65.6 billion in compensation and benefits last year to their 186,000 employees.

That means year-end bonuses, at 60 percent of the total, txceeded the $36 billion distributed in 2006 when the industry reported all-time-high profits. The New York-based firms, which shed 25 percent of their equity value during 2007, have said they're eliminating at least Dow FROM PAGE BS recent weeks. Credit concerns also dogged Wall Street after rating agency Moody's Investors Service placed bond insurer Ambac Assurance Corp. on review for a possible downgrade. That possibility alarmed investors because it would place all bonds insured by Ambac on review as well.

Wall Street is concerned that bond insurers would be unable to absorb a spike in claims. Investors' fears of a slowing economy, the consequence of a months-long housing and credit market crisis, dominated trading, as they have since the start of the year. "The Philadelphia Fed just announced dreadful numbers," said John O'Donoghue, co-head of equities at Cowen Co. He said if you look back at Philadelphia Fed data for similar numbers, it takes you back to the 2001-to-2002 recession. "It's not rocket science the economy is slowing dramatically, and it's being reflected in economic reports." The Dow closed down 306.95, or 2.46 percent, at 12,159.21.

The Dow is off 8.33 percent for the year; there have been just 12 trading days so far in 2008, but the index's frequent triple-digit losses have now forced it to give back its 2007 gains. The Dow had its lowest close since it ended the March 16, 2007, session at 12,110.41. The 500 index lost 39.95, Airline FROM PAGE BS more consistently profitable but he added that it could be forced to respond if rivals get bigger. "We do pay attention to relative size and we would have some concern" if rivals make deals, he said. "If we see something or hear something, we won't hesitate to act aggressively." Kellner also said that bookings in the past 10 days have been strong enough to dispel fears that a weakening economy could hurt air travel.

He said a December slowdown might just as easily have been due to Christmas and New Year's Day falling on Tuesdays, EaV. E.fi;; if t( l' I Traders gather at the New York Stock Exchange on Wednesday. Markets lost ground Thursday after an unexpected decline in manufacturing activity was reported, iap file photoi ume came to a heavy 5.41 billion shares compared with 5.25 billion traded Wednesday. Bond prices rose as stocks fell and anxious investors sought the safety of government-issued securities. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.63 percent from 3.68 percent late Wednesday.

The dollar was mixed against other major currencies. The Chicago Board Options Exchange's volatility index, known as the VIX, and often re out $38 billion. Bonuses for 2007 probably will mark a high point as revenue declines stretch into this year, said Charles Geisst, a finance professor at Manhattan College in Riverdale, N.Y. "The gilded age just ended," he said. "Ferrari dealers are going to be selling Tata cars.

I think this is going to be the worst year we've had in a very long time." Management teams at Mor Massage FROM PAGE BS Hand Stone from the start. "Basically, what I recognized was the value of therapeutic massage and the total acceptance of therapeutic massage by Main Street America," Marco said. "Massage used to be just in the high-end spas, and day spas and destination spas. Now you can put these in shopping centers." The company's concept was to make therapeutic massage available and affordable. "People want a massage when they want it," Marco said.

"They want to get it the same day or the next day." Hand Stone offers annual memberships that come with a monthly massage and discounts on other services to make it affordable, he said. Annual memberships cost $49.95 a month and include a 50-minute massage each month. "We definitely brought this service to people who never had it before and they get hooked," Marco said. His family helped him come up with the business' name. Marco had found that many other potential spa names (and their Web sites) were already taken.

"To name a spa today is very difficult because all of the dotcoms are taken," Marco said. "If you don't own the dot-com, you don't really own the name." Doldrums FROM PAGE BS same period of 2006. On the bright side, steady growth in personal income is forecast through 2017, with an average of nearly 5 percent per year well above the expected annual inflation rate of 2 percent. That category includes income from wages, investments and other sources. New Jersey's job growth this year is forecast at only 0.3 percent, down from 0.5 percent in 2007 and 0.9 percent in 2006, but should rebound to an average of 0.8 percent over the subsequent decade.

Through 2017, Mantell predicts, New Jersey will add about 344,000 jobs. Last year, most job gains came in government, followed by education and health services and professionalbusiness services, while half of all jobs lost were in manufacturing. New Jersey's gross state product is forecast to grow at a modest 2.2 percent on average through 2017, below the national average of 2.5 percent. James Diffley, head of the U.S. Regional Services Group at the economic firm Global Insight said he sees the number of jobs growing slightly faster in New Jersey than in Pennsylvania from now through 2010 after New Jersey fell way behind Pennsylvania and the rest of the country in job growth in early 2007.

"In the last few months, New Jersey's catching up," he said. That's despite salaries in New Jersey being 20-25 percent higher on average than Pennsylvania's. The Garden State also had stronger personal income growth the past two years than Pennsylvania, Diffley said, Hand Stone opened its first company-owned location in November 2004 in Toms River, followed by a spa in Spring Lake Heights a year later. The Spring Lake Heights location was sold in October 2006 to Maria Cermatori, who became the first franchisee. Cermatori, of Toms River, and her husband bought the business after she was downsized to part-time hours, doing administrative work for a financial-planning company.

"We were both in our early 50s and we needed to work for the next 10 to 15 years," Cermatori said. "Retiring at 50 was not an option." Her husband continues to work at his corporate job. She liked the idea of owning a spa, and has about 25 therapists on staff. "This was a good fit," Cermatori said. The company also owns a spa in Marlton, Burlington County.

Hand Stone is in expansion mode. A total of four franchise locations have opened in Arizona and Tennessee. Fifteen more are to open this year in those states, as well as in Florida, Colorado and Georgia and on Long Island. All told, Marco said he hopes to open between 25 and 50 franchise locations this year, including two in North Jersey. "We want to have a national franchise and a household name in the therapeutic massage industry," Marco said.

David P. Willis: (732) 643-4039, or at dwillistfiapp.com "largely due to the financial sector" and its high-paying jobs and big bonuses. Rae Rosen, senior economist at the Federal Reserve Bank of New York, said she sees job growth and economic activity getting "slower and slower" this year in both New York and New Jersey, but New York City will fare a little better given it still had momentum coming out of 2007. She noted the office market there is "incredibly tight" and the number of residential building permits issued is still going up in the Big Apple, while it has been flat since 2005 in the rest of New York and declining in Pennsylvania and New Jersey. "Housing production has been constrained in New Jersey" recently, which helped lower the inventory for sale, said James Hughes, dean of the Bloustein school.

"But it doesn't insulate us from the (housing market) problems." Also Thursday, Fairleigh Dickinson University's annual New Jersey consumer survey found residents' confidence in their near-term financial situation is eroding. The survey found 41 percent saying they are worse off than a year ago, up from 35 percent last year. Meanwhile, 27 percent say they are better off than the year before, down slightly from 30 percent Only 37 percent expect to be better off financially a year from now, down from 42 percent a year ago. or 2.91 percent, closing at 1,333.25, and leaving it with a year-to-date loss of 9.2 percent, while the Nasdaq dropped 47.69, or 1.99 percent, to 2,346.90, giving it a 2008 deficit of 11.51 percent. Thursday brought the lowest close for the 500 since October 2006 and the worst for the Nasdaq since March of last year.

Declining issues outnumbered advancers by more than 5 to 1 on the New York Stock Exchange, where consolidated vol pushing some travel into January. Ray Neidl, an analyst for Ca-lyon Securities, said that by his calculations, Continental will show that it earned a profit and beat Wall Street expectations. "They did better than consensus, their guidance looks strong, demand looks strong," Neidl said. "Part of the reason is that the Newark (Liberty International) Airport is a powerhouse that's driving their growth." Continental reported that fourth-quarter revenue rose to $3.52 billion from $3.16 billion a year ago. That was a tick better than the $3.51 billion forecast of analysts surveyed by Thomson Financial.

The sales bump came from trans-Atlantic flights where Continental faces less competi- tion from low-fare rivals, and passenger revenue rose 27.5 percent and from a nearly 10 percent gain on domestic revenue, a weak spot for most U.S. airlines. The major U.S. airlines raised fares and fuel surcharges several times in the fourth quarter, although a $50 per round trip fuel fee was rolled back this week. Continental executives said they had to drop the surcharge because other carriers were more selective about where they added the fee, leaving Continental higher-priced on some routes.

Continental said it used financial hedging transactions and better fuel efficiency to partly offset the cost of jet fuel, which has risen along with oil prices that topped $98 per barrel in the fourth quarter. ferred to as the "fear index," jumped nearly 17 percent Thursday. Light, sweet crude fell 71 cents to settle at $90.13 a barrel on the New York Mercantile Exchange after Federal Reserve Chairman Ben Bernanke's prediction of slower economic growth this year. Slowing growth could dampen demand for oil. The Philadelphia manufacturing reading caught Wall Street by surprise igniting fears that the economy is slowing.

Amex FROM PAGE BS at Tabb Group LLC, a Boston-based consultant. "A lot of the growth that exchanges have experienced over the last few years has come through acquisitions." Exchanges are racing to meet investor demand for a low-cost way to trade across asset classes and time zones, striking more than $41 billion worth of mergers and acquisitions in the past year, according to Bloomberg data. The Amex purchase is the second acquisition for Niederauer, who took the helm Dec. 1 after the departure of John Thain to Merrill Lynch Co. NYSE Euronext (NYX) shares fell $6.24, or 8 percent, to $71.07.

The shares have gained 11 percent since their debut in March 2006. The Amex handled 8.4 percent of the option contracts traded last year, while NYSE Euronext matched 11.7 percent, according to Options Clearing Corp. The Amex listed 381 ETFs with about $215 billion in assets as of Jan. 10, according to Bloomberg data. NYSE Euro-next listed 242 ETFs with a total of $342 billion under management, Bloomberg data show.

NYSE Euronext plans to consolidate the two trading floors, according to the companies' statement, moving Amex traders three blocks east from Trinity Street in downtown Manhattan to the Big Board on Broad Street. Niederauer will also combine data centers and share administrative functions, cutting $100 million in costs within two years. The Amex traces its roots to 1842, when traders barred from the New York Stock Exchange started buying and selling shares on the sidewalk. Their exchange didn't move indoors until 1921. if I WEB BULLETINS Visit our Web site I throughout the day I for breaking local news, I sports scores and 5 story updates..