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To: Tom M who wrote (7198)	9/30/1998 11:36:00 AM
From: Joseph G.	Respond to of 86076

2X4 <<NEW YORK, Sept 29 (Reuters) - In a sudden reversal of fortunes, U.S. securities firms are seeing some key businesses grind to a halt and their shares pounded by investors worried about potential trading losses. The worsened outlook is reflected by investment bank Goldman Sachs & Co.'s (GS - news) decision on Monday to shelve its plan to go public because global financial turmoil had depressed the firm's potential value. Brokerage shares have fallen more than 50 percent from their July highs, which meant Goldman partners would pocket million of dollars less in a stock offering than they originally planned on. Brokerages were ringing up record profits and hiring people in droves in the first half of the year because of a strong U.S. stock market, record stock and debt offerings, and a flood of corporate merger deals. Now firms are barely making money and may have bigger trading losses than previously thought, analysts and industry sources said on Tuesday. Some, such as financial services firm Travelers Group Inc. (NYSE:TRV - news), are even planning to lay off employees, just as the industry employed a record 663,400 people across the nation in August, up 10 percent from a year ago. Tuesday's decision by the Federal Reserve Bank to cut a key short-term interest rate by 0.25 percent to 5.25 percent, usually a booster for financial stocks, did little to help the battered brokerage shares. The group declined because some investors had expected the Fed to cut rates by half a percent. One reason for the market rout is that all Wall Street houses have said trading losses in emerging and bond markets would hurt third-quarter results. Firms that already reported earnings for the quarter ended August 31 --Goldman, Morgan Stanley Dean Witter & Co. (NYSE:MWD - news) and Lehman Bros Holdings Inc. (NYSE:LEH - news)-- all posted double-digit profit declines. ''The difficulty now is -- aside from trading losses -- that there is just a lack of business, and that is spilling into the fourth quarter,'' said analyst Joan Solotar of Donaldson Lufkin & Jenrette. ''If the market stabilizes, many of the deals the firms have in the wings will (go through), but I view that more as a first quarter event than a fourth quarter event.'' Firms have seen the lucrative trade of underwriting stock and bond offerings dry up because of a jittery U.S. stock market and weakened investor appetite for high-yield, or junk, corporate bond issues. Revenues from bond trading -- a major source of profits -- also have slackened or turned into losses. At the same time, investors worry about firms' exposure -- or outstanding loans -- to emerging markets and leveraged funds such as Long Term Capital Management of Greenwich, Conn. The wealthy investor fund lost around $4 billion, or 90 percent of its capital, on ill-timed bets in global bond markets. Fourteen banks and Wall Street firms last week agreed to shell out around $3.5 billion to ensure the fund can orderly unwind its estimated $80 billion in outstanding positions. The firms agreed to the bailout for fear that a rapid liquidation of the fund would roil the already jittery bond markets. ''Long Term is still leaning on the market,'' said analyst Michael Flanagan of Financial Service Analytics. "Brokerage shares are going to stay under pressure until it's resolved. To add injury to insult, it now has become clear that some of Wall Street's biggest names -- such as Merrill Lynch and Co Inc. (NYSE:MER - news) Chairman David Komansky and PaineWebber Group Inc. (NYSE:PWJ - news) Chairman Donald Marron -- were among Long Term Capital's investors and have lost 90 percent of their stakes. Moreover, Long Term Capital's bailout has investors worried the industry contains more skeletons. ''There's a lot more uncertainty, a lot more concern about financial institutions exposures (to leveraged funds),'' said an East Coast money manager. ''Lay on top of that (brokerages) core businesses are all in the crapper, and we'd be more circumspect in evaluating any brokerage (bonds or stocks) offered to us.'' Future trading losses aside, firms also face a slowdown in their retail operations, as investors are deserting the wobbly U.S. stock market. Investors pulled a net $9 billion out of stock funds in August, the first time such funds saw a net outflow in eight years, according to preliminary data from mutual fund tracking service Lipper Analytical Services. ''Retail has slowed a bit but it's still holding up better than the institutional business,'' said DLJ's Solotar. ''It usually lags, so I would expect it to slow down more.''>>