Inside the great investment houses on Wall Street, business has taken a surprising turn — downward.
Even after taxpayer bailouts restored bankers’ profits and pay, the great Wall Street money machine is decelerating. Big institutions are still making a lot of money, but brokerages and investment banks are not making nearly as much as executives, employees and investors hoped for.
The activities at the heart of what Wall Street does — selling and trading stocks and bonds, and advising on mergers — are running at levels well below where they were at this point last year, said Meredith Whitney, a bank analyst who was among the first to warn of the subprime mortgage disaster and its impact on big banks.
Worldwide, the number of stock offerings is down 15 per cent from this time last year, while bond issuance is off 25 per cent, according to Capital IQ, a research firm.
Whitney predicts that annual revenue from Wall Street’s main businesses will drop 25 per cent, to around $42 billion in 2010, from $56 billion last year.
While the numbers will not be known until financial companies begin reporting earnings in October, the pace of trading this summer was slow even by normal summer standards.
Trading in shares listed on New York Stock Exchange was down by 11 per cent in July from 2009, and August volume was off 30 per cent.
“What’s happened in the third quarter is that after a very slow summer, people expected things to come back,” said Whitney. “But they haven’t, and the inactivity is squeezing everyone.”
With less than two weeks to go in the third quarter, companies will be hard-pressed to fulfill earlier, more optimistic expectations.
“It’s like the marathon: if you’re five miles behind, you can’t make that up in the last 10 minutes of the race,” said David H. Ellison, president of FBR Fund Advisers, a money management firm.
Many banks are barely scraping by in traditional Wall Street business. Even the mighty Goldman Sachs, which posted a profit every day for the first three months of the year, is unlikely to deliver the kind of profit growth that investors have come to expect.
As both consumers and companies cut back on debt, and financial reform rules put the brakes on profitable niche trading, the engines of earnings growth will continue to sputter.