On of the consequences of the bubble that needs to remedied is the fact that there are way too many people employed in the financial industry today and they make a lot more money than they should in most cases. This industry needs to shrink dramatically both in numbers and average compensation if we are ever to have a normal sane society.
More Wall Street Jobs Threatened
Thu Jul 4, 6:06 PM ET
By Brian Kelleher and Greg Cresci
NEW YORK (Reuters) - Wall Street firms have pinned their hopes on a stock market
rebound to boost business, but they could end up cutting thousands more jobs if things
don't get better.
Major U.S. stock gauges are at multiyear lows amid high-profile accounting scandals,
corporate profit worries and distrust of Wall Street itself. Still, even after a vicious series of
layoffs, there are 118,000 more jobs on Wall Street today than five years ago.
While brokerage executives have said they don't plan to cut more jobs, they are at the mercy of the stock market. And if stocks fall
further, that could add to the thousands of layoffs that already have occurred on Wall Street.
"There's clear overcapacity right now for the current environment," said Michael Holland, chairman of investment firm Holland &
Co. and a nearly 30-year Wall Street veteran.
Stock markets are reeling from a raft of corporate blowups, the most recent being WorldCom Inc.'s $3.85 billion accounting
debacle. That has further clouded an already dark landscape for stock underwriting and merger advisory, which carry fat investment
banking fees.
Last month, industry stalwarts such as Morgan Stanley , Goldman Sachs Group Inc. and Lehman Brothers Holdings Inc. posted
lower quarterly earnings but expressed moderate enthusiasm for the rest of the year.
"Our view has always been a stronger second half than first half, that's still our view," Morgan Stanley Chief Financial Officer Steve
Crawford said on June 19.
But that was before WorldCom's admission rocked the reeling Nasdaq composite index <.IXIC> and S&P 500 Index <.SPX>,
which have continued to plunge this summer.
The stock slump has hit Wall Street hard, slamming trading commissions and also lucrative investment banking businesses like
mergers and new stock offerings.
"We'll probably go back to 1996, 1997 revenue levels," said Robertson Stephens analyst Justin Hughes. "Then (firms) have to
manage their headcount to that ... everybody has to kind of shrink back down to their strengths."
OVERCAPACITY
Total securities industry revenue peaked at $245.2 billion in 2000 and dropped more than 20 percent to $194.8 billion in 2001,
according to the Securities Industry Association. That's still above the $145 billion in revenue the industry raked in 1997. This year,
revenue has fallen still more.
With expenses still high, profit will suffer. Wall Street firms posted combined net income of $8.3 billion last year, down from
$10.2 billion in 1997, as total expenses in that time period jumped 39 percent.
Bigger work forces drove some of those higher expenses. While securities firms have cut more than 41,000 jobs since sector
employment peaked in February 2001, staffing levels are still 19 percent higher than in 1997, according to the SIA. There are now
735,000 employees working for securities firms, compared with 617,000 in 1997.
Key businesses, like merger and acquisitions advisory (M&A) and underwriting initial public offerings (IPOs), are down from
1997 levels.
M&A deals totaled a combined $1.75 trillion in 1997, a figure that shot to a peak of $3.53 trillion in 2000, according to data firm
Dealogic. So far in 2002, M&A volume is at a trifling $645.7 billion, not even half of 1997 levels.
IPOs -- which can generate fat banking fees of up to 7 percent -- have also fallen off, down to just 52 deals so far in 2002,
compared with 541 five years ago.
"You have all these companies that do need to raise capital but there's just no (investor) demand there," Hughes said.
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