Good News and Bad on Wall Street


The New York Times reports both good news and bad today:

The activities at the heart of what Wall Street does — selling and trading stocks and bonds, and advising on mergers — are running at levels well below where they were at this point last year, said Meredith Whitney, a bank analyst who was among the first to warn of the subprime mortgage disaster and its impact on big banks.

Worldwide, the number of stock offerings is down 15 percent from this time last year, while bond issuance is off 25 percent, according to Capital IQ, a research firm. Based on these trends, Ms. Whitney predicts that annual revenue from Wall Street’s main businesses will drop 25 percent, to around $42 billion in 2010, from $56 billion last year.

….As a result, executives, portfolio managers and analysts say that even the mighty Goldman Sachs, which posted a profit every day for the first three months of the year, is unlikely to deliver the kind of profit growth that investors have come to expect.

Keith Horowitz, a bank analyst at Citigroup, said he expected Goldman Sachs to earn $7.8 billion in 2010, a 35 percent decline from the $12.1 billion it made last year. The drop in trading translates into lower commissions for brokerage firms, as well as a weaker environment for underwriting initial public offerings and other stock issues, traditionally a highly lucrative niche.

Banks are also scaling back on making bets with their own money — known as proprietary trading — another huge profit source in recent years that will soon be forbidden under terms of the financial reform legislation passed by Congress this summer.

Wall Street should be earning less. Ideally, though, it should be earning less because margins have become thinner and the market for lucrative but idiotic rocket science finance has declined. So the good news here (maybe) is that prop trading activity is down and margins are getting squeezed. The bad news is that core businesses like issuing bonds and managing IPOs are also down. That’s just a sign of a sluggish economy.

And speaking of a sluggish economy….

OUR NEW CORRUPTION PROJECT

The more we thought about how MoJo's journalism can have the most impact heading into the 2020 election, the more we realized that so many of today's stories come down to corruption: democracy and the rule of law being undermined by the wealthy and powerful for their own gain.

So we're launching a new Mother Jones Corruption Project to do deep, time-intensive reporting on systemic corruption. We aim to hire, build a team, and give them the time and space needed to understand how we got here and how we might get out. We'll publish what we find as a major series in the summer of 2020, including a special issue of our magazine, a dedicated online portal, and video and podcast series so it doesn't get lost in the daily deluge of breaking news.

It's unlike anything we've done before and we've got seed funding to get started, but we're asking readers to help crowdfund this new beat with an additional $500,000 so we can go even bigger. You can read why we're taking this approach and what we want to accomplish in "Corruption Isn't Just Another Scandal. It's the Rot Beneath All of Them," and if you like how it sounds, please help fund it with a tax-deductible donation today.

We Recommend

Latest

Sign up for our newsletters

Subscribe and we'll send Mother Jones straight to your inbox.

Get our award-winning magazine

Save big on a full year of investigations, ideas, and insights.

Subscribe

Support our journalism

Help Mother Jones' reporters dig deep with a tax-deductible donation.

Donate