Profits Plunge for Wall Street Firms This Year

Profits in the nation’s ailing securities industry were an anemic $200 million in the first six months of 1990 and have deteriorated since, Wall Street’s leading trade group said Sunday.

Securities Industry Association figures indicated that this may be the first year since the 1970s that industry profits have been below $1 billion. The industry made $1.8 billion last year, $2.5 billion in 1988 and $1.1 billion in 1987. The record was $5 billion in 1986.

In response, the association said, Wall Street is slashing expenses beyond the nearly 50,000 jobs cut since the 1987 stock market crash.

Trading and underwriting of stocks and bonds has been depressed by drastically fewer mergers, concern over the economy, the year-old collapse of the junk bond market and reduced activity by individual investors.

The association said industry revenue will not increase this year for the first time since the 1970s. It said profit margins are below 1%, return on equity under 2% and brokerage commissions off 11%.

George Monahan, the group’s director of industry studies, said with the exception of the top 10 firms, the industry “has been doing an excellent job of cost reduction.”

Excluding the 10 largest firms, broker compensation is off 6% from 1989 and commission revenue 7%. But at the 10 largest firms, broker compensation is down 8% and commission revenue 16%.

Wall Street is notorious for its high compensation, particularly during boom cycles such as the mid-1980s when young investment bankers and other professionals quickly commanded six-figure salaries. Stockbrokers, on the other hand, receive less pay.

The association said that when expenses are adjusted to exclude interest, compensation in the first six months of 1990 amounted to 57% of costs. Pay was down to a third of expenses from 41% in 1987.

More compensation cuts are being made. Year-end bonuses this year for investment bankers--an important indicator of compensation trends--are expected to be slashed 30% to 50% at top firms.

That would bring compensation for investment bankers down to 1985 levels--still considered high. Many firms in recent weeks have laid off investment bankers, including senior-level professionals, because of declining business.

Despite several rounds of cutting since the 1987 crash, Wall Street pay last year still averaged more than $82,700 per employee, including clerks and secretaries, the association reported--almost double the level a decade ago.