The U.S. Securities Industry Association is reporting that industry profits were cut in half by the weakening economy and the aftermath of September 11.

“The securities industry was continuing to experience a downturn into the summer, with significant drops in revenue through August,” says Frank Fernandez, SIA senior vice president and chief economist.

“The consequences of September 11 exacerbated that trend.” Firms developed and implemented plans to significantly reduce expenses in the second and third quarters. These cost-cutting efforts resulted in a third-quarter domestic pre-tax profit of $1.85 billion and a projected 2001 profit of $11.2 billion, a 47% drop from the record $21.0 billion in 2000, (All amounts in U.S. dollars).

“Some firms held off on their expense-reduction plans, hoping that there would be an upturn,” Fernandez says. “When the indications showed otherwise, they took the steps necessary to keep their firms operating profitably while continuing to serve their clients.”

Total compensation, the firms’ second largest expense, was reduced 10% in the second quarter, and another 10% in the third, largely from reduced payouts to producers, brokers, traders, and investment bankers as a result of lower transaction volume and bonus accruals.

Through September, worldwide holding company revenues and profits reached $278 billion and $24.3 billion, respectively. This compares with results from the first nine months in 2000 of $335 billion and $48.3 billion, respectively.

Total equity underwriting fell 34% to $32.3 billion in the third quarter.Initial public offerings fell 81% to $3 billion in the third quarter, the lowest quarterly total since the first quarter of 1991. From January through September, fixed-income underwriting expanded 30 percent to $1.7 trillion.