US investment banks under pressure as profits collapse
Andrew Clark in New York Thursday September 27, 2001 The Guardian
A collapse in profits at Goldman Sachs, together with bad news from other Wall Street banks, triggered fears of a fresh round of job cuts in the City yesterday.
Bear Stearns and Credit Suisse joined Goldman in predicting a bleak end to the year, with the World Trade Centre disaster delaying any recovery in economic conditions.
All three have suffered from a slump in the number of corporate deals and a slowdown in stockbroking revenue amid plunging share prices.
Goldman's third-quarter earnings dropped 43% to $468m. Its chief financial officer, David Viniar, said: "The outlook for our businesses in the fourth quarter has clearly been clattered by the attack on the World Trade Centre."
He said investment banking would "understandably" be affected in the coming months, although he predicted that the new year would be brighter.
There had been rumours that Bear Stearns, one of America's biggest investment banks, was planning to announce thousands of redundancies yesterday. It admitted its headcount was likely to "trend downwards" after re vealing a 26% drop in quarterly profits to $135m. The number of big mergers and acquisitions announced over the summer fell by half. Trading volumes and volatility were also sharply down prior to the attack.
Many banks are said to have delayed announcing redundancies, as layoffs would appear insensitive in the light of the World Trade Centre disaster. The number of people working in financial services on Wall Street fell from 200,000 to 185,000 earlier this year, with similar cuts in the City of London.
Credit Suisse, the owner of CSFB, warned that it expected its growth to be "substantially lower" in the third quarter. It said the aftermath of the disaster would "exacerbate the already difficult economic and market conditions experienced by all our businesses over the past year".
Banks which rely on institutional business, such as Goldman Sachs, Lehman Brothers and Bear Stearns, are thought likely to recover faster than those which have many private clients, such as Charles Schwab and Merrill Lynch. Institutions tend to be braver than private individuals in choppy markets.
At Goldman Sachs, revenue from equity trading was down 25% to $573m. Investment banking income rose 39% following the closure of several big deals over the summer which had been announced months earlier, but advisory fees fell 5% to $638m.
Among Goldman's bigger transactions were the £17bn merger of Hewlett Packard with Compaq and the flotation of consultancy firm Accenture, formerly Arthur Andersen.
Mr Viniar said the company did not expect any direct financial effect from the World Trade Centre's collapse, as Goldman's buildings were not damaged.
. JP Morgan chairman Douglas Warner will retire by the year-end and turn the job over to president and chief executive William Harrison, cementing Chase Manhattan's control of the number two US bank holding company.
Chase Manhattan already holds many of the top jobs at the new bank, although JP Morgan managers retain leadership roles in European investment banking and other areas in which that company was strong.
Mr Warner's departure shows the bank is not sparing anyone as it fires thousands of workers and slashes costs.