Wall Street May Earn $24 Billion as Banks Emerge From Scandals 
Last Updated: November 9, 2005 00:02 EST 


Nov. 9 (Bloomberg) -- After paying more than $12 billion in fines and settlements over four years, Wall Street firms including Goldman Sachs Group Inc. and Lehman Brothers Holdings Inc. are headed for their biggest profits since 2000. 

The U.S. securities industry will earn at least $24 billion before taxes in 2005, said Frank Fernandez, chief economist at the Securities Industry Association. Executives at the group's annual meeting, starting today in Boca Raton, Florida, will ``undoubtedly'' be more optimistic than last year, he said. 

``As far as the scandals are concerned, that's largely been put behind us and the fines are mostly paid,'' said Robert Torray, who oversees about $6 billion at Bethesda, Maryland- based Robert E. Torray & Co., including shares of Goldman, JPMorgan Chase & Co. and Bank of America Corp. ``It may be a lot of money, but it's not enough to put a dent in the business.'' 

Goldman, Lehman, Merrill Lynch & Co. and Bear Stearns Cos., all based in New York, reported record third-quarter earnings as bond trading surged and banks advised on $942 billion of U.S. mergers, data compiled by Bloomberg show. Merrill's brokerage unit is having its best second half in five years. Charles Schwab Corp., with more than $1 trillion in customer assets, reaped the biggest third-quarter profit since 2000's Internet- fueled heights. 

The 12-member Amex Securities Broker-Dealer Index jumped 22 percent so far in 2005. The Standard & Poor's 500 Index rose less than 1 percent. 

``Business is picking up,'' said Gordon Hing, 71, chairman of Emmett A. Larkin Co. in San Francisco, which processes trades for brokers. ``We're optimistic for 2006.'' 

Mutual Fund Crackdown 

A year ago, executives gathered in Florida after mutual funds such as Boston-based Putnam Investments and Janus Capital Group Inc. in Denver agreed to pay almost $3 billion in fines and restitution for improper trading, the result of a regulatory crackdown spearheaded by New York Attorney General Eliot Spitzer. 

That was on top of the $10 billion that New York-based Citigroup Inc. and firms including Credit Suisse First Boston and Merrill paid or set aside for regulatory probes of biased stock research and the bankruptcies of Enron Corp. and WorldCom Inc. 

While those investigations have been completed, another has begun. Refco Inc., once the largest independent U.S. futures broker, collapsed a week after its chief executive was arrested for securities fraud. The now-bankrupt company raised $670 million in an August initial public offering led by Bank of America in Charlotte, North Carolina, Goldman and CSFB, the investment banking unit of Credit Suisse AG in Zurich, Switzerland. Spokespeople at the three firms declined to comment. 

Last year's SIA gathering invoked the banner ``Commitment to Clarity.'' This year, it's ``Creating Opportunities.'' 

``Lessons have been learned and we've moved on,'' said Fernandez of the SIA. ``We've had a very good year. It may be an exceptional year, depending on how the fourth quarter goes.'' 

Bonuses 

The increase in profits mean bonuses for New York-based employees of securities firms will be about 10 percent higher than in 2004, or $17.5 billion, according to compensation consultants. Last year, Wall Street firms awarded about $15.9 billion, said New York State Comptroller Alan Hevesi. 

Most of the biggest firms pay about 50 percent of revenue in compensation, and bonuses can be as much as 12 times base salaries. 

Investment bankers and executives who cater to hedge funds can expect a 20 percent rise in their bonus this year, according to a report yesterday by compensation consulting firm Johnson Associates Inc. A typical managing director at an investment bank will probably take home about a $1.2 million bonus this year, compared with the average award of $1.5 million at the market's peak in 2000 and $1.05 million last year, the report said. 

``The impressive financial performance delivered by the major brokerage and investment firms in the third quarter should solidify a third consecutive year of higher incentives,'' Alan Johnson, the firm's president, said in the report. 

Cox, Thain, Glauber 

This week's gathering in Florida may provide clues to the direction of the Securities and Exchange Commission under its new chairman, Christopher Cox, who is scheduled to address the gathering on Nov. 11. Cox will speak on ``pressing issues'' confronting the securities industry, according to the SIA schedule, which wasn't more specific. 

Other speakers at the three-day event include John Thain, the former Goldman president who became chief executive officer of the New York Stock Exchange in January 2004; Robert Glauber, chairman of market regulator NASD Inc.; and James Gorman, who will take over New York-based Morgan Stanley's individual investor unit in February. It's the first time in at least three years that a CEO of a Wall Street firm hasn't been lined up to speak. 

Comedian Dennis Miller, 52, is scheduled to entertain conference attendees tonight as they gather at the Boca Raton Resort & Club, established in 1926 on 356 acres that has two golf courses, six swimming pools and 30 tennis courts. 

Brokers Benefit 

``Market conditions for securities firms are probably as ideal as they could get,'' said Bob Stein, 56, chairman of the global financial services group at Ernst & Young in New York. ``Merger activity is up, stock offerings are up, trading businesses are doing well. There have been a lot of regulatory issues, but underlying performance hasn't been impacted negatively.'' 

New York-based Merrill, the world's biggest brokerage, last month said third-quarter revenue at its private client arm, which caters to individuals, was $2.7 billion, the most since the fourth quarter of 2000. Schwab, based in San Francisco, said third-quarter revenue climbed to $1.1 billion, also a five-year high. Merrill Lynch is a passive, minority investor in Bloomberg LP, the parent of Bloomberg News. 

Margin loans, offered by brokerages to clients seeking to finance securities purchases, have rebounded to levels not seen since 2000 and totaled $218 billion among all member firms in the month of September, the NYSE reported. 

At Boston-based Fidelity Investments, the world's largest mutual fund firm, daily trades on which it collects commissions rose 61 percent in the third quarter, the highest quarterly average since the second quarter of 2000. 

A.G. Edwards Inc., which has about 7,000 brokers, said second-quarter revenue rose 10 percent from a year earlier to $673 million. The St. Louis-based company said revenue from commissions rose 8 percent as customers traded stocks more frequently. 

To contact the reporter on this story:+m
Gregory Cresci in New York at  [email protected].IH

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This will make you smile a bit. Morgan Stanley is one of the exception, it didn't do great this year - only certain units such as prime brokers who service the Hedge Funds clients, and bankers who sell interest rate derivatives did well.)&y
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Morgan Stanley is planning to fire about 25 Managing Directors in the units that didn't do well - the firing is worldwide.#
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Morgan Stanley to Fire Two Dozen Senior Bankers as Bonuses Loom Qk\.&
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Nov. 16 (Bloomberg) -- Morgan Stanley, the only major U.S. securities firm to report lower third-quarter earnings, will fire about two dozen senior investment bankers, said a person with direct knowledge of the plans. 

As many as 25 managing directors will be told this week they're no longer needed, said the person, who declined to be identified. The cuts, which affect bankers in offices around the world, mark the biggest shakeup in Morgan Stanley's investment- banking unit since Walid Chammah, 51, was made global head of the group in August. Morgan Stanley spokesman James Badenhausen declined to comment. 

Chief Executive Officer John Mack, attempting to lift net income and the company's stock price, announced plans to eliminate more than 1,000 brokers in August. Mack, 60, who yesterday said he plans to double earnings at the New York-based firm in five years, also has eased out board members and executives, including John Schaefer, head of the brokerage for individual investors, and asset management chief Mitchell Merin. 

``I've said to our managers, `we need to manage our business,''' Mack said in an interview after a Merrill Lynch & Co. investor conference in New York yesterday. ``Everyone looks at the portfolio of people and in looking at that there may be some changes. A lot of it is the year-end process.'' 

Morgan Stanley, which has more than 1,000 managing directors worldwide, reported an 83-percent drop in fiscal third-quarter net income, dragged down by $1 billion of costs from the planned sale of an aircraft leasing unit. ymHt2g
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`Performance Has Lagged' 

Mack was appointed CEO in June, replacing Philip Purcell who left amid pressure from shareholders. Morgan Stanley's stock fell 40 percent during Purcell's final five years in the job. Mack worked at Morgan Stanley from 1972 to 2001. He then ran Credit Suisse First Boston, the securities unit of Zurich-based Credit Suisse Group, for about three years until mid-2004. 

Shares of Morgan Stanley are down 0.6 percent this year, trailing the 25 percent advance of the Amex Securities Broker/Dealer Index. The stock closed 44 cents lower yesterday at $55.17.  `R:
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In remarks to investors at the Merrill conference, Mack called for improvements to ``almost every'' businesses. ``Make no mistake, our performance has lagged the industry,'' he said. 

Mack named former debt capital markets banker Chammah to run investment banking, including mergers and acquisitions. Chammah replaced Cordell Spencer and Michael Uva, who were appointed by Purcell five months earlier. Uva left in September after 20 years at Morgan Stanley. 

M&A Fees 

Stock and bond underwriting accounted for $510 million of Morgan Stanley's investment-banking revenue in the third quarter, up 27 percent from a year earlier. Fees from mergers and acquisitions increased 25 percent to $388 million. Morgan Stanley ranks second behind Goldman Sachs Group Inc. among M&A advisers, with a 25 percent market share, according to data compiled by Bloomberg. 

Morgan Stanley in September named Franck Petitgas and Hans Schuettler as co-heads of European investment banking, selecting two bankers with a background in selling stocks and bonds over those who advise on mergers and acquisitions. 

The planned firings at Morgan Stanley are being decided as the firm considers year-end bonuses. Bankers and traders are typically told the size of their bonuses two weeks after the end of the fiscal year on Nov. 30. 

Firms including Morgan Stanley, Goldman Sachs, Lehman Brothers Holdings Inc. and Bear Stearns Cos. will announce bonuses in mid-December. More than 150,000 New York bankers, brokers and traders are in line for payouts of two to 12 times their base salaries, executive-search firm Options Group said last month. 

To contact the reporter on this story:ka
Gregory Cresci in New York at  [email protected].l
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Last Updated: November 16, 2005 02:06 EST 

2005 ¦~µØº¸µó Bonus ¬O:  ¤G¦Ê¤@¤Q¤­»õ ¬ü¤¸ (21.5 Billion USD)6y
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Wall Street Bonuses to Hit Record $21.5 Billion in 2005 
By JENNY ANDERSON[_^
THE NEW YORK TIMES0WQ
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Ferrari dealers get ready: Wall Street bonuses are in and they are big. 

Alan G. Hevesi, the New York state comptroller, announced today that Wall Street bonuses are estimated to hit a record $21.5 billion for 2005, surpassing the previous record of $19.5 billion of 2000. Those bonuses were driven by record profits at many of Wall Street's major banks, including Goldman Sachs, Bear Stearns and Lehman Brothers. ]O25(
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The Street's munificence will be felt throughout New York: Mr. Hevesi estimated that New York State will collect $1.5 billion in tax revenue and New York City will receive about $500 million from those bonuses. 

"Wall Street continues to be critically important to the economies of both the city and the state," he said. 

The average bonus of $125,000 was also a record, surpassing the previous peak in 2004, of $114,270. Mr. Hevesi's figures represent bonuses awarded at 220 companies listed on the New York Stock Exchange. Adjusted for inflation, the 2000 record was $22.3 billion. H;$s
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The benefits, while widespread, will not be shared equally. "When the tides come in, all boats rise," said Alan Johnson, managing director of Johnson Associates, the compensation consulting firm. "Thousands make $1 million or more, and then there are lots of people who get $10,000. Everyone gets something, but it is by no means equitable."6-cx
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Wall Street chief executives will be at the top of the heap, reaping the benefits of their banks profits. Henry Paulson, chief executive of Goldman Sachs, earned a compensation package of $38 million for 2005. Richard Fuld, the chief executive of Lehman Brothers was awarded $14.9 million in restricted stock. John Mack, who took over the reins of Morgan Stanley last summer, earned $11.5 million for five months' worth of work. 

While most Wall Street executives, bankers and traders have now been told what bonuses they are getting, they will not be receiving the cash or stock until the end of this month or next month. Nonetheless, some will have already budgeted or spent their bonuses. Real estate and luxury cars are typically high on Wall Street spending lists.O
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Performance on the Street varied among the firms last year, but the underlying business of trading, lending, advising and raising money for companies was robust over all.q$K6Rk
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About $1.8 trillion in mergers and acquisitions were completed in the fiscal year ended in November, according to estimates by Merrill Lynch. That compares with $1.3 trillion in 2004. American companies coming to market raised $48 billion in 2005, compared with $62 billion in 2004. But companies outside the United States raised $379 billion last year, compared with only $282 billion the previous year. 

Indeed, those investment firms with global reach benefited from it. According to Thomson Financial, European issuance in 2005 climbed 13 percent, to $2.46 trillion, while Japanese underwriting rose more than 10 percent, to $276 billion. United States issuers raised $3.02 trillion, a bigger total, but up only 4 percent from last year's level. No American company was in the top 10 global initial public offerings. 

The bulk of Wall Street's profits continue to come from trading, with an increasing amount coming from firms' using their own money to make bets, rather than simply acting as agents between parties trading. f
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"The trading business, which drives Wall Street - it's not investment banking - continued to be extremely strong, even though interest rates went the wrong way," Mr. Johnson said, referring to the fact that interest rates have been rising, a development that can hurt Wall Street profits. 

Revenues at Wall Street firms grew by 44.5 percent through the first three quarters of 2005, reaching the highest levels since the stock market peaked in 2000. 

The year "2000 was the peak of the greatest boom in our modern history," Mr. Hevesi noted. "It was a remarkable time, so this is very good news." 

Already this year, the stock market has had a modest rally, a positive indicator for profits on the Street. In addition, many of the investment firms are planning to increase their work forces by as much as 10 percent, adding more high-priced mouths to feed in 2006. 

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