“It is time to close what is perhaps one of the darkest chapters in the history of modern finance. It is time for us to move on.”
— Dick Grasso, NYSE Chairman
If only it were that simple. The “global settlement” is nice — the firms pony up $900 million in fines and say, ‘See, we've cleaned ourselves up.’ Interestingly, US Bancorp Piper Jaffray and Thomas Weisel declined to join 10 other Wall Street firms, saying that the settlement unfairly burdens them.
And they might be right. Smaller broker/dealers weren't really the problem. Many of our readers work for the giant, international firms because they like the oomph of having a name such as Merrill or Morgan or UBS on their cards. But how do you like it now? If you work for a wirehouse, do you have any credibility to sell anymore? It's no idle question. Here is one indicator: Schwab, which is viewed as a conflict-free brokerage (whether it warrants that image or not), gathered about $37.5 billion in new assets in the first 10 months of 2002 while Merrill took in just $7 billion.
Get this: Business might get worse before it gets better. The retail investor has the feeling of being whipped like a dog. Retail trading activity has plummeted by about 57 percent from January 2000 through October 2002, according to Sanford C. Bernstein. Investors yanked nearly $27 billion out of equity mutual funds through October; 2002 will likely be the first negative cash flow year for equity funds since 1988.
What this means is declining revenue and profit for most brokerages. In fact, U.S.-based broker/dealers' profits fell to around $8 billion in 2002, the lowest yearly profit since 1995.
The problem is that brokerages still have 1997-levels of staffing. Firms, on average, cut just 10 percent from peak employment levels reached in April 2001. As one friend of ours said recently, “The U.S. is still way over-brokered.”
Please turn to page 32 for how to avoid getting crushed in the next round of bloodletting.
Ah, but let's not be so dour. In an effort to be a little more sunny, we've introduced a new column, called Spending It. Appearing each month, our new column will help you spend your hard-earned bread in rewarding ways. This month we provide some tips on buying wristwatches that will retain their value. Next month: some yachting cruise ideas.
As always, let us know what you think. Contact us with questions, problem, concerns, story ideas, whatever at [email protected]. Or call me directly at (212) 462-3591.