Hard Times for Brokers : 4th Quarter Industry Profits Sag; More Layoffs Expected Next Year
Slim profits in the U.S. brokerage industry could lead to more layoffs next year if business conditions do not improve, Wall Street analysts said.
As the firms wind up 1988 business, Perrin Long of Lipper Analytical Services says he expects industry profits of $250 million to $300 million before taxes in the fourth quarter, compared with $292 million in the third quarter. When business was booming in the first quarter of 1987, pretax income for the industry totaled $2 billion.
Long said industry-wide employment, about 241,000 at the end of the third quarter, could decline by 3% to 4% next year if trading remains sluggish. “Given the current level of business, you will see further erosion through normal attrition or additional layoffs,” he said.
Wall Street has lost about 20,000 jobs since the stock market crash in October, 1987.
Long said 1989 earnings will probably be little changed and could swing up or down 5% from 1988 levels.
Although low trading volume and thin underwriting calendars are responsible for much of the gloom that hangs over Wall Street, firms mostly involved in merger and acquisition work are making substantial profits.
Lawrence Eckenfelder of Prudential Bache Securities Ltd. said more layoffs are possible, adding, “I wouldn’t want to project that they are going to be huge.”
The one area on Wall Street that has enjoyed boom times in 1988 is mergers and acquisitions. Analyst Brenda Davis McCoy of Paine Webber Group Inc. said the question is whether the activity will peak in 1989 and then decline.
McCoy said that if Congress approves curbs on leveraged buyouts, there could be a surge in merger activity as firms rush to get through a “window of opportunity” before it slams shut. From the standpoint of investing in the Wall Street firms that make deals happen, however, money managers may conclude that it is pointless to pay for activity that cannot be sustained.
