The Securities Industry Association is projecting 2003 as one of the most profitable years ever for Wall Street although revenues are off steeply from last year.
For those of you able to do the math, the profit news is bittersweet because it means that the industry continues to cut costs aggressively.
The SIA originally had estimated that Wall St. firms would book profits of $15 billion this year, but it recently raised that prediction to $20.6 billion on $161 billion in revenue. If the profit number is realized, 2003 would finish second to only 2000's $21 billion in profits.
It's no secret, of course, that securities firms are cutting costs. But it is a little surprising that they continue so aggressively. In all likelihood, the cuts are fueled by the fact that revenue trendlines have proven hard to predict. They're currently on the rise, but 2003's numbers still trail last year's badly, according to SIA chief economist Frank Fernandez.
He says much of the industry's revenue improvements are coming from the traditionally stolid non-fixed-income side of the business (although fixed-income operations are still holding up their end).
“The industry shows strength across the board,” says Fernandez, who noted the revenue upticks in traditionally flat areas like banking and insurance services.
Still, the SIA admits the reason profits are up so high is because cuts continue apace, and this fact tempers the excitement over the revised profit numbers.
Given all this, the $64,000 question becomes: If revenues continue to climb, will firms continue to cut costs? Of course, such moves would help boost profits even more. But at what long-term cost to the reps?