‘96 Looks Like a Record Year for Securities Firms

Fueled by the stock market boom and flood of initial public offerings, the securities industry is on track to smash nearly all existing records in 1996, including revenues, profits and employment, according to the Securities Industry Assn.

Total employment among the industry’s 300 largest firms hit 262,000 at the end of September, eclipsing the previous peak of 260,000 in 1987, said the SIA, the industry’s New York-based lobbying and research arm.

Industry profits through the first nine months of 1996 were $8.7 billion--already past the full-year record set in 1993 and en route to a total of $11.5 billion to $12 billion, said Jeffrey M. Schaefer, the SIA’s research director.

“To use a baseball metaphor, the industry has had two career years in the ‘90s,” Schaefer said. “In 1993, it was like hitting .350 with 50 home runs and 140 runs batted in; this year, it’s like .380, 60 home runs and 180 RBIs.”

Return on equity isn’t quite where it was in the early 1980s, but it would be churlish to complain. Through Sept. 30, pretax ROE was nearly 31%, surpassing last year’s 20.9% and 1993’s 27.1%. The record, set in 1980, was an astounding 49% pretax.

Schaefer notes that returns have shrunk since then for two main reasons: Discount brokers have pushed down commissions on stock sales, formerly one of the industry’s most lucrative areas. Second, firms have beefed up their equity capital from 1980s levels, meaning they would need much larger profits to achieve equal ROE figures.

However, profit margins, or pretax returns on revenue, are running close to the record levels of the 1980s, Schaefer said. The profitability mix is different now at the typical brokerage, he said, with equities underwriting and merger-and-acquisition fees now leading the way and commission-based profits lagging a little.

Given the publicity attending this year’s huge flows of funds--particularly from retirement accounts--into the securities markets, it should be no surprise that industry revenue is going to punch a hole through the roof in 1996. Schaefer estimates full-year revenues of $120 billion that would shatter last year’s record of $96 billion.

The employment record is particularly impressive to Schaefer, considering that ever since the 1987 stock market crash, when thousands were laid off, brokerages have been reluctant to increase head count. But the current boom has forced their hands.

“They’re lean now and they can’t do the business with existing staff,” Schaefer said. He estimated that employment would reach 265,000 by year-end.