Profit Declines in Securities Bring Predictions of Layoffs
Wall Street is heading into the last quarter of the year suffering continuing declines in some of its most profitable business lines such as advising on mergers, according to statistics compiled by IDD Information Services, a New York research firm. Analysts predict a new round of layoffs for the securities industry if business does not improve.
“There’s no question that in the first nine months of this year, as compared to the first nine months of 1988, the dollar volume of fee income has declined,” said Perrin Long, an analyst for Lipper Analytical Securities Corp. “The profits from these investment-banking businesses had been a major factor in covering up the sins and the lack of profits in other areas,” such as bond and stock trading and sales.
Long added that if the decline in business continues through the end of the year, Wall Street firms probably will launch another round of layoffs after Christmas. Long estimated that as of June, about 292,000 people worked for New York Stock Exchange member firms throughout the world. He predicted that as many as 5,000 of these could be cut if business does not improve.
Brokerage executives were reluctant to talk about their individual firms’ performance until after they release third-quarter earnings information later this month. Some officials said privately, however, that a sudden, general slowdown in business in September, following a better-than-usual summer, clouded their earlier hopes for healthy third-quarter figures.
“On Sept. 4, the phones just went silent,” said one retail brokerage executive.
Despite the summer spurt, retail brokerage has been slow since the stock market crash in October, 1987. Many firms had recorded earnings increases on the strength of the merger boom.
Wall Street firms disclosed that they had earned more than $1 billion in fees from advising on merger deals in 1988, according to IDD. The actual earnings most likely were higher, after figuring in fees from private deals.
Although comparable fee figures for 1989 are not yet available, the number of new merger deals completed in the first three quarters of this year dropped 12% from last year’s pace, IDD figures show. “The domestic merger business is not as intense as it once was,” said Joseph Perella, chairman of Wasserstein, Perella & Co., the top merger advisory firm, according to IDD’s ratings.
Other high-margin investment-banking services also have tapered off--and the profit margins have shrunk. Common stock issues, for example, fell precipitously from 1988’s already low levels, according to IDD. At this point in 1988, U.S. companies sold $23.8 billion in stock to the public, with Wall Street pocketing an average fee of $4.9 million a deal. IDD’s comparable figures so far this year are $15.1 billion of new offerings and $2.9 million in average fees.
