With only a month left in 2006, Wall Street's second-most profitable year ever, celebrants might be wise to party hard and sober up fast — the earnings forecast for 2007 is a substantial 23 percent lower, according to the Securities Industry Association.
It's certainly been a solid year for brokerage house profits. In a report released in late September, SIA chief economist Frank Fernandez wrote that NYSE and NASD member firms would see domestic pretax profits rise 46 percent this year, to $25.6 billion. For the first half of 2006, industry profits reached $15.3 billion, the best half-year performance in six years. Fernandez expects profits in the second half of the year to reach $10.3 billion. The stellar results for the year are largely attributable to big trading and investment-banking gains, according to Fernandez.
But SIA says next year doesn't look nearly as good. “In 2007, we expect profits to decline to roughly $20 billion as revenue margin compression continues and slower growth in the economy and in corporate profits constrains activity,” writes Fernandez. He also expects significant declines in revenues from proprietary trading, merger advice and prime brokerage.
The all-time record profit for the securities industry was $31.6 billion in 2000.