Banks are where the money is

Amy Scott Dec 14, 2006

KAI RYSSDAL: Wall Street firms are swimming in profits. Today Bear Stearns announced its fourth quarter earnings swelled by 38-perecent. That’s a company record. Lehman Brothers’ profits jumped 22 percent. Of course all that’s nothing next to Goldman Sachs. Earlier this week the investment bank turned in the biggest quarter in Wall Street history. With all this money sloshing around, it’s hard to believe we’re in the midst of slowing economic growth. Marketplace’s Amy Scott reports.

AMY SCOTT: The stars have aligned for Wall Street banks. It’s been a huge year for mergers and acquisitions. And the big firms are raking in the advising and investment banking fees. Eileen Fahey with Fitch Ratings says the stock market boom hasn’t hurt either.

EILEEN FAHEY: Everything seems to be working in their favor. The M&A business and investment banking businesses are doing quite well, the trading businesses are doing well, both equity and fixed income as well as commodities. And because of those efforts, the asset management businesses are also doing well.

Jeffrey Harte follows the major investment banks for Sandler O’Neill. He says Wall Street firms often do well when the economy is still growing, but that growth is starting to slow.

JEFFREY HARTE: That tends to be where corporate profits start to slow down little bit, corporations start looking to do more things, be it make acquisitions, make divestitures, find alternative sources of financing. So as long as the economy keeps growing, kind of the later-cycle growth time can actually be the best environment for these stocks.

Harte expects the good times to last through next year. But some are predicting a recession in 2007, and a slowing economy would likely kill the party. Securities industry employment still hasn’t quite recovered from the last recession.

In New York, I’m Amy Scott for Marketplace.

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