Securities Industry Financial Results, 4Q’06

For 2006, the securities industry reported financial returns that, for most indicators, matched or exceeded records set during the previous industry peak in 2000 and completed a three-year recovery from the sharp downturn that extended from the spring of 2001 to the fall of 2003. Total revenues reached $436.8 billion, an increase of 35.7% from 2005 and 31.9% above the previous annual record set in 2000, while total expenses were $403.7 billion, 32.7% above 2005, the previous annual high, and 34.8% above 2000 levels. Net revenues also set a new annual record, reaching $221.1 billion, a rise of 19.1% from the $185.6 billion recorded in 2005 and 8.5% above the previous high of $203.9 billion in 2000. Profits reached $33.1 billion for all of last year, 88.2% above the $17.6 billion earned in 2005 and 4.7% above the previous record of $31.6 billion set in 2000. Growth of profits and net revenues was led by the largest firms, as trading gains and revenues from investment banking surged, activities in which
large firms dominate the market.

Securities Industry Employment and Compensation Trends

As of March 2007, 92.3% of the jobs lost during the US securities industry’s 31-month cyclical retrenchment, which occurred from March 2001 through October 2003, have been recovered. Although securities industry employment increased overall, according to the most recent detailed data available for 2005, gains were mainly seen in mid-level occupations, whereas senior- and lower-level positions experienced relatively minor gains or a decline. Changes in employment were due to the industry’s ongoing structural adjustments driven by a variety of trends, including the consolidation of the industry, redesign of trading exchanges, revamping of market infrastructure, automation of trade execution, and new regulatory and compliance frameworks. Compensation growth in the securities industry increased in 2004 but was significantly scaled back in 2005. The largest compensation increases were seen by mid-level professionals, with accountants, auditors, financial examiners, financial analysts and market research analysts receiving the largest pay increases.

Credits

Research

• Frank Fernandez
• Paul Rainy