Big Brokerages See Profit Decline
Three of Wall Street’s biggest brokerage firms reported earnings declines for the latest quarter Wednesday because a plunge in equities throttled investment-banking revenue.
Profit at Morgan Stanley Dean Witter & Co. fell 30% and was off 28% at Lehman Bros. Holdings Inc. for the quarter ended Feb. 28. Both results were slightly higher than analyst forecasts. Bear Stearns Cos. said earnings for the period dropped a deeper-than-expected 40%.
Executives at all three of the firms, which a year ago rode a stock market surge to record profits, said they don’t expect business to turn around any time soon. They are counting on cost cuts to shore up their bottom line.
“The tone of the market is sobering for everyone,” Morgan Stanley President Robert Scott said in a conference call with reporters. “We don’t expect to see [employee] growth this year, and we’re focused on expenses.”
Goldman Sachs Group Inc. on Tuesday reported a 13% decline in earnings for the latest quarter.
“Despite the Fed rate cuts, it is not clear when these markets will improve,” Scott said. “The question is how much further easing is required to get the economy back on a growth trajectory. The market is telling you that 50 basis points yesterday didn’t do it.”
Morgan Stanley, the largest U.S. securities firm by market value, said profit from operations fell to $1.07 billion, or 94 cents a share, a penny better than forecasts, from $1.54 billion, or $1.34 a share in the year-ago period. Net revenue fell 14% to $6.39 billion.
Revenue from brokerage commissions, trading and underwriting declined, and the firm lost money from venture capital investments.
Investment banking revenue posted the biggest decline, sliding 28%, and the firm posted a $46-million loss from its principal investments, or merchant banking and venture capital, compared with a $431-million gain a year ago.
Bear Stearns’ profit from operations fell to $166 million, or $1.10 a share, from $278 million, or $1.89, a year ago. The results came in well below the $1.28 analysts anticipated.
Net revenue fell 19.4% to $1.2 billion. Investment banking revenue declined 59%.
Bear Stearns’ fixed-income trading business saw revenue rise 1.5% and stock-trading revenue fall 9%. Revenue in Bear Stearns’ brokerage business, which serves wealthy individuals, fell 31%.
Revenue in the firm’s stock clearing business, one of the biggest on Wall Street, fell 16%.
At Lehman Bros., first-quarter net income fell to $387 million, or $1.39 a share, from $541 million, or $1.85, a year ago, beating analyst predictions by 2 cents. Net revenue fell to $1.9 billion from $2.2 billion.
Revenue from equity underwriting fell 60%, and debt underwriting rose 20%. Revenue from advising on mergers and acquisitions rose 2%.
The effect of the market’s decline also was felt at A.G. Edwards Inc., one of the few remaining independent brokerages. The company said fourth-quarter profit fell 54% to $45.9 million, or 57 cents a share, from $100.8 million a year ago.
On the New York Stock Exchange, Morgan Stanley shares fell $1.86 to $54.64, Bear Stearns fell $1.25 to $45.50, Lehman Bros. fell $2 to $63.90 and A.G. Edwards fell $1.36 to $34.08.
As a group, brokers’ shares this year declined 21%, according to the American Stock Exchange’s broker/dealer index. The index fell 4.7% on Wednesday.
