By James Langton

(December 21 – 18:10 ET) – The U.S. Securities Industry Association is projecting, based on preliminary data from member firms, that worldwide profits for the United States securities industry for the fourth quarter will be $6.1 billion, down 38% from the third quarter. (All figures in U.S. dollars.)

The industry is expected to post record profits and revenues for the full year, too, thanks to an unprecedented first quarter which saw global revenues of $113 billion, and profits of $21 billion.

Worldwide profits will be $51 billion, a 22.5% increase over 1999’s record $41.6 billion. Revenues for 2000 are projected to hit $425 billion, 31% above 1999’s record $325 billion.

All markets are posting record volumes. The New York Stock Exchange should reach an average of 1.03 billion shares a day, 27% above last year’s record. Nasdaq is averaging 1.7 billion shares traded a day, up from 1.1 billion in 1999.

Merger and acquisition activity has been strong. Through October 2000, there were 8,934 announced deals in the U.S. worth a total of $1.6 trillion.

However, equity underwriting slowed through the year, with IPOs particularly drying up. Total equity underwriting in U.S. markets reached $215.6 billion through November, and is expected to top $235 billion for the year, ahead of 1999’s full year record of $199.2 billion. Fixed-income underwriting, projected at $1.4 trillion, will be down 13% from 1999.

All of this action is accelerating the pace of consolidation; 102 mergers or acquisitions of securities firms had been completed or announced through mid-October. Of those deals, 46 disclosed the dollar value, which totaled $113.7 billion, or an average of $2.5 billion per deal.

“Revenues were negatively impacted by rising interest rates and slowdowns in volume and underwriting,” said Frank Fernandez, SIA senior vice president and chief economist. “However indications are that firms are well-positioned to take advantage of the loosening of monetary policy and an easing of credit conditions that we expect in early 2001.”

The industry’s success was largely due to its ability to handle increasing demand from investors. “Volumes on every market are at record levels,” said Fernandez. “The industry responded by ensuring that its systems could meet these demands. Even on the peak volume days in the first quarter, investors had their trades executed more efficiently than ever before.”

Fernandez emphasized that this efficiency is the result of the investment the industry has made in its technology. “Investors are, on average, paying less to transact their trades thanks to a healthy competitive environment and upgrades to the Street’s infrastructure.”

While the first quarter’s results were phenomenal each subsequent quarter showed the negative impact of higher interest rates. Underwriting and particularly initial public offerings dried up as a result of higher rates. “The increase in interest rates has impacted many areas of the firms’ balance sheets,” Fernandez said. “In addition to cutting into revenues from capital raising as companies scaled back plans for expansion, firms had higher expenses in servicing their own debt.”

Fernandez said, “While we expect industry performance to remain strong in 2001, it would be unrealistic to assume that the string of successive record years will continue indefinitely.”