Wall Street will have its third-best year ever this year as revenue rises from investment banking, stock sales and trading, according to new estimates from the Securities Industry Association.
Securities companies' US pretax profits should more than double to US$15 billion this year from US$6.9 billion last year, the industry group said in a report released yesterday. That estimate compares with US$9.2 billion forecast as recently as last month and US$7.4 billion projected at the beginning of the year.
"The downturn in Wall Street since the peak in 2000 is over," Frank Fernandez, the New York-based chief economist for the Washington-based group, 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."
Some 48,000 US securities jobs were eliminated from 2001 through May of this year, according to SIA data, as companies slashed costs amid a three-year bear market that erased more than US$8 trillion in value from stocks between March 2000 and Marchof this year. Last year, Wall Street profits were the lowest since 1994.
Merrill Lynch & Co, 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.
Ameritrade Holding Corp, which handles the largest number of online stock trades, reported Tuesday that earnings jumped eightfold as individual investors' trades rose 33 percent from the first quarter.
"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 US$3.9 billion in the US, based on examination of company earnings reports, Fernandez said. That followed a tripling to US$3.5 billion in the first quarter from US$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 is "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."