Outlook for the ‘90s : ...

The 1990s will realize some of Wall Street’s brightest hopes and darkest fears.

The decade will bring a much closer integration of world capital markets, a development that will sharply increase demand for brokerage and underwriting services. But with the new integration will come booming competition from abroad and home, shaving profits in some areas razor thin.

Wall Street firms were preparing for this new reality in the 1980s. Many sought to bolster their financial resources by merging or forming alliances with wealthy outsiders. Kidder, Peabody & Co. was purchased by General Electric, for example, while Paine Webber sold an 18% stake to Yasuda Mutual Life Insurance, and Goldman, Sachs & Co. sold a 12.5% stake to Sumitomo Bank.

The need for capital was partly due to the threat of increased competition from commercial banks, which were barred from the securities business for half a century by the Glass-Steagall Act. With deregulation, the act has been slowly unwound. And the one remaining barrier--which prevents commercial banks from underwriting stock issues--eventually may be swept away as well.

Because of the tough new competitive climate, analysts expect Wall Street’s big full-service firms to be forced to become much more nimble in the 1990s, jumping quickly into new ventures and out of them just as quickly if they don’t pay off. This means that the big firms’ payrolls will rise and fall swiftly.

Merger advice, which has provided up to 40% of some big investment banks’ earnings in this decade, will probably earn them less over the next several years if a recession materializes. Further out, however, integration of the world economy will set off a new round of corporate mergers. There may also be big moneymaking opportunities as the U.S. firms that have taken on so much debt in the 1990s issue new stock, sell assets or take other steps to strengthen their financial positions.

For the regional stock brokerages that sell investments to individuals, life in the 1990s may change much less. Their best customers, Americans over 50 years old, will grow sharply in number and will still be willing to pay well for financial services.