The report also found that average cash bonuses slid by 13 percent to $121,000. Wall Street profits down by half

Wall Street profits were down by half in 2011 and cash bonuses fell too — and many in the industry say tightened oversight pressed by President Barack Obama is the reason.

Profits at banks and brokerage houses tumbled to $13.5 billion last year from $27.6 billion, according to a report out Wednesday from the Office of the New York State Comptroller Tom DiNapoli. The report also found that average cash bonuses slid 13 percent to $121,000, while firms laid off 4,300 employees during the last nine months of 2011.


“There’s still fallout from the financial crisis and anticipation of continued implementation of regulatory reform and changes,” DiNapoli said Wednesday, announcing the findings on MSNBC’s “Morning Joe.”

Financial-sector leaders had predicted that profits would be down as a result of adapting to hundreds of new rules imposed by the 2010 Dodd-Frank reforms — regulations directed at preventing a repeat of the catastrophic meltdown that resulted in the massive federal bailouts.

“This is a fundamental change we haven’t seen before and it’s because of Dodd-Frank,” said Tom Quaadman, vice president of the U.S. Chamber of Commerce’s Center for Capital Market Competitiveness. “This is almost like the canary in the coal mine right now. Reduced profitability and job loss in the financial markets is the leading indicator that we’re losing our edge.”

To comply with the rules, banks have closed internal trading desks and held cash in reserve that would have previously been invested in the markets. Industry trade groups have also fought back, filing lawsuits to prevent the implementation of restrictions on trading.

But industry leaders have made clear that Dodd-Frank — which has yet to be fully implemented — is not the sole cause of declines in profitability at the broker-dealer arms of banks, which is the measure used by DiNapoli to determine “Wall Street” profitability.

Goldman Sachs, Morgan Stanley and other firms noted in fourth quarter results that new regulations had dented revenues, but said lower trading volumes and reduced merger and acquisition activity due to a slow economy and less risk-taking were also very big factors.

JPMorganChase CEO Jamie Dimon, in remarks to investors on Tuesday, said regulations would not dent long-term profitability.

“I’ll be damned if we don’t have record profits for the next year or two,” Dimon said, according to an account of his remarks in the Financial Times. He added that the reduction in investment banking revenue was “cyclical” and not a permanent shift based on regulatory changes.

Jes Staley, who heads JPMorgan’s investment bank, said he believed the Volcker Rule portion of Dodd-Frank, which limits the ability of banks to engage in proprietary trading and to invest in hedge funds and private equity funds, would be watered down before it is implemented in July.

In addition, the broader banking industry, outside of broker-dealer units, is strengthening. On Tuesday, the FDIC reported that commercial banks and savings institutions that it insures produced aggregate profit of $26.3 billion in the fourth quarter of 2011, up $4.9 billion from the $21.4 billion in net income in the fourth quarter of 2010.

The FDIC said it was the the 10th consecutive quarter that earnings have registered a year-over-year increase. Much of the gains came from lower provisions for loan losses, meaning banks see the economy improving and fewer people defaulting on credit cards, mortgages and other loans.

That left many experts skeptical of the impact being attributed to Dodd-Frank.

“Typical Wall Street, they blame everything on regulation,” said Dennis Kelleher, president and CEO of the nonprofit advocacy group Better Markets. “The cost of complying with very modest financial regulation is minuscule compared to their tens of billions in revenues, profits and compensation. Those costs are also nothing compared to the benefit of preventing Wall Street from causing another financial crisis and sticking their hands in the pockets of American taxpayers for more bailouts.”

The Republican presidential candidates have vowed to repeal Dodd-Frank, while Obama has argued that by reducing risks, the law should prevent the need for another massive government bailout.

“If you’re a big bank or financial institution, you are no longer allowed to make risky bets with your customers’ deposits,” he said in last month’s State of the Union address. “You’re required to write out a ‘living will’ that details exactly how you’ll pay the bills if you fail — because the rest of us are not bailing you out ever again.”

DiNapoli defended the reforms as being positive in the long run by moving firms away from cash bonuses and toward stock options and deferred compensation.

“More oversight, more transparency, reducing oversight, reducing leverage, if that means sustainable profits that are more predictable, that’s good for everyone,” he said.

And Federal Reserve Chairman Ben Bernanke assured a congressional panel Wednesday that regulators were trying to maximize the benefits of Dodd-Frank while minimizing its costs.

“We understand that the specifics of the regulations make a big difference,” Bernanke told the House Financial Services Committee. “It’s important to get the best results with the least burden.”