Wall Street firms are headed for their third most-profitable year ever, driven by a revival in merger advice and stock sales and trading, Securities Industry Association figures show.
Securities companies' U.S. pretax profits should more than double to $15 billion this year from $6.9 billion in 2002, the industry group said in a report today. That estimate compares with $9.2 billion forecast as recently as last month and $7.4 billion projected at the beginning of the year.
``Things are definitely recovering,'' William Fall, the London-based president of Bank of America Corp.'s international operations, said in a telephone interview. ``But let's not get too excited and declare victory too soon.''
Some 48,000 U.S. securities jobs were eliminated by firms such as Merrill Lynch & Co. and Credit Suisse First Boston from 2001 through May, according to SIA data. Companies slashed costs amid a three-year bear market that erased more than $8 trillion in value from stocks between March 2000 and March 2003. Last year, Wall Street profits were the lowest since 1994.
`Downturn Is Over'
``The downturn in Wall Street since the peak in 2000 is over,'' Frank Fernandez, the chief economist for Washington-based SIA, said in an interview. ``We just had our board meeting -- 31 firms that probably represent about 85 percent of the business -- and nobody was talking about more layoffs.''
Merrill Lynch, the largest securities firm by capital, on July 15 reported a 61 percent surge in second-quarter profit. Goldman Sachs Group Inc., the third-biggest securities firm, on June 25 reported a 23 percent jump in profit. Stocks have rallied since March, driving the Standard & Poor's 500 Index up 23 percent and the Nasdaq Composite Index up 34 percent.
``We think the outlook for the second part of the year and going forward is also beginning to strengthen,'' Citigroup Inc. Chairman Sanford Weill said July 14 after the company reported second-quarter earnings at its investment bank rose 2 percent to $1.34 billion. Bankers are ``seeing an increase in the backlog in our expected deals and in mergers and acquisitions.''
Ameritrade Holding Corp., which handles the largest number of online stock trades, said earlier this week that its fiscal third-quarter profit rose more than eightfold as trading surged.
Shares of brokers have outperformed the Standard & Poor's 500 Index this year. The AMEX Securities Broker/Dealer Index has climbed 35 percent, and the S&P 500 advanced 12 percent.
`Sustainable Growth'
``We are turning the corner,'' Fernandez said. ``We had clear sustainable growth in the second quarter.''
The industry's second-quarter pretax profits rose 11 percent from the first quarter to $3.9 billion in the U.S., based on examination of company earnings reports, Fernandez said. That followed a tripling to $3.5 billion in the first quarter from $1.1 billion earned the previous three months.
While sales and trading of commodities and bonds and other fixed-income products drove first-quarter profit gains, other lines of business including new stock sales and trading started to pick up in the second quarter, the report showed.
Bonds and commodities are ``a very narrow base,'' Fernandez said. ``We needed to see a pickup in growth in other depressed areas, and we saw that in second quarter.''
Fixed-income and commodities revenue rose by $500 million in the second quarter to $6.5 billion. Other sources, including stock issuance and commissions from trading equities, rose $1.3 billion, the report said.
`Recovery'
``We've seen a very strong convertible bond market and fixed- income is very strong,'' said Bank of America's Fall. ``There is a recovery in M&A and equity but it's still at a very low level.''
Investment-banking revenue at Goldman Sachs, Merrill Lynch and Morgan Stanley will rise an average of 15 percent in the second half as merger activity increases along with initial public offerings, Sanford C. Bernstein & Co. brokerage analyst Brad Hintz wrote in a report to clients this week.
Seven U.S. companies sold $1.67 billion in shares in the second quarter, up from $513 million sold by four companies in the first quarter, according to Bloomberg data. That's still about a fourth of the $5.5 billion raised by 35 companies in the second quarter of 2002.
Wall Street's best year was 2000, when domestic pretax profit was $21 billion, according to the SIA. The second-best year was 1999, when the total was $16.3 billion.
Securities companies' U.S. pretax profits should more than double to $15 billion this year from $6.9 billion in 2002, the industry group said in a report today. That estimate compares with $9.2 billion forecast as recently as last month and $7.4 billion projected at the beginning of the year.
``Things are definitely recovering,'' William Fall, the London-based president of Bank of America Corp.'s international operations, said in a telephone interview. ``But let's not get too excited and declare victory too soon.''
Some 48,000 U.S. securities jobs were eliminated by firms such as Merrill Lynch & Co. and Credit Suisse First Boston from 2001 through May, according to SIA data. Companies slashed costs amid a three-year bear market that erased more than $8 trillion in value from stocks between March 2000 and March 2003. Last year, Wall Street profits were the lowest since 1994.
`Downturn Is Over'
``The downturn in Wall Street since the peak in 2000 is over,'' Frank Fernandez, the chief economist for Washington-based SIA, said in an interview. ``We just had our board meeting -- 31 firms that probably represent about 85 percent of the business -- and nobody was talking about more layoffs.''
Merrill Lynch, the largest securities firm by capital, on July 15 reported a 61 percent surge in second-quarter profit. Goldman Sachs Group Inc., the third-biggest securities firm, on June 25 reported a 23 percent jump in profit. Stocks have rallied since March, driving the Standard & Poor's 500 Index up 23 percent and the Nasdaq Composite Index up 34 percent.
``We think the outlook for the second part of the year and going forward is also beginning to strengthen,'' Citigroup Inc. Chairman Sanford Weill said July 14 after the company reported second-quarter earnings at its investment bank rose 2 percent to $1.34 billion. Bankers are ``seeing an increase in the backlog in our expected deals and in mergers and acquisitions.''
Ameritrade Holding Corp., which handles the largest number of online stock trades, said earlier this week that its fiscal third-quarter profit rose more than eightfold as trading surged.
Shares of brokers have outperformed the Standard & Poor's 500 Index this year. The AMEX Securities Broker/Dealer Index has climbed 35 percent, and the S&P 500 advanced 12 percent.
`Sustainable Growth'
``We are turning the corner,'' Fernandez said. ``We had clear sustainable growth in the second quarter.''
The industry's second-quarter pretax profits rose 11 percent from the first quarter to $3.9 billion in the U.S., based on examination of company earnings reports, Fernandez said. That followed a tripling to $3.5 billion in the first quarter from $1.1 billion earned the previous three months.
While sales and trading of commodities and bonds and other fixed-income products drove first-quarter profit gains, other lines of business including new stock sales and trading started to pick up in the second quarter, the report showed.
Bonds and commodities are ``a very narrow base,'' Fernandez said. ``We needed to see a pickup in growth in other depressed areas, and we saw that in second quarter.''
Fixed-income and commodities revenue rose by $500 million in the second quarter to $6.5 billion. Other sources, including stock issuance and commissions from trading equities, rose $1.3 billion, the report said.
`Recovery'
``We've seen a very strong convertible bond market and fixed- income is very strong,'' said Bank of America's Fall. ``There is a recovery in M&A and equity but it's still at a very low level.''
Investment-banking revenue at Goldman Sachs, Merrill Lynch and Morgan Stanley will rise an average of 15 percent in the second half as merger activity increases along with initial public offerings, Sanford C. Bernstein & Co. brokerage analyst Brad Hintz wrote in a report to clients this week.
Seven U.S. companies sold $1.67 billion in shares in the second quarter, up from $513 million sold by four companies in the first quarter, according to Bloomberg data. That's still about a fourth of the $5.5 billion raised by 35 companies in the second quarter of 2002.
Wall Street's best year was 2000, when domestic pretax profit was $21 billion, according to the SIA. The second-best year was 1999, when the total was $16.3 billion.
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