Based on preliminary data from its member firms, the Securities Industry Association projects that profits for the domestic operations of U.S. securities firms will be US$10.2 billion for the year, down 51% from 2000.

Nevertheless, this would still rank as the fifth most profitable year in the industry’s history. “In an extremely difficult year for the securities industry, firms met unprecedented challenges by taking prompt, decisive actions, both collectively and individually,” said Frank Fernandez, SIA senior vice president and chief economist.

These actions included a coordinated, industry-wide effort to reopen the markets only six days after the September 11 terrorist attacks and the implementation of stringent expense controls in reaction to market conditions.

Revenues for the domestic operations are estimated to be US$198.3 billion, down 19%. Expenses will be US$188.1 billion, down 16%. Worldwide holding company profits for the U.S. securities industry for 2001 will be US$28.2 billion, down 51%.

Overall, companies raising money showed a decided preference for fixed income over equities. The US$2.12 trillion raised in fixed income issuance for the first 11 months of 2001 boosted total underwriting volume to US$2.27 trillion, eclipsing 1999’s full-year record of US$1.96 trillion.

“Equity underwriting was down 25% over 2000’s comparable level, reflecting a more cautious attitude among underwriters,” said Fernandez. This cautious attitude resulted in an estimated US$39 billion raised from IPOs for full-year 2001, down 49% from last year’s US$76.1 billion.

Underwriting revenues dropped 9.4%; and virtually every revenue area showed a decline during 2001. While volume on the exchanges set record levels, revenues from commissions dropped. “The combination of lower stock prices and the continuing decline in commissions and fees in this competitive marketplace resulted in firms processing more trades but earning less from that business,” Fernandez said.

Compensation expense fell from US$15.5 billion in the second quarter to US$14 billion in the third. Total compensation expenses for the industry in 2001 are expected to be US$61.2 billion, or 32.5% of total expenses, an 11.2% decline from 2000’s US$69.0 billion.

Securities industry employment, which peaked in February at 776,400, should end 2001 at 750,000, a decline of 3.4%, but still 4.7% higher than the 716,000 at year-end 1999.

Revenue growth has resumed in the fourth quarter of 2001, it says. Profits are expected to expand, not contract this quarter, and the trough of the industry downturn appears to have been late this summer. If this recovery is sustained and strengthens in 2002, further reductions in employment and expenses will prove unnecessary. Based on early indications, the securities industry’s pre-tax profits for 2002 should be $11.6 billion.