Earnings of U.S. securities firms will drop 23 percent next year, predicts Frank Fernandez, chief economist of the Securities Industry Association. In a report released this week, Fernandez says Wall Street will be pressured by a slowing economy and competition from electronic exchanges. The decline will follow this year's 46-percent surge in profits.
"In 2007, we expect profits to decline to roughly $20 billion as revenue margin compression continues and slower growth in the economy and in corporate profits constrains activity in both primary and secondary securities markets,'' Fernandez wrote.
"Accentuating this drop are expectations that revenues from outsized gains in proprietary trading come to an end, and rapid growth abates in revenues from corporate financial advisory services other than underwriting (such as mergers and acquisitions, leveraged buyouts, private equity, etc.) and prime brokerage services."
Some observers have been predicting a general slowdown for Wall Street in the coming months. The SIA's report came at the same time Credit Suisse reportedly began cutting back on peripheral expenses and ABN AMRO was said to have imposed a recruitment freeze, though the bank responded it was only looking "critically at hiring decisions."