SIA Senior Vice President and Chief Economist Frank Fernandez attributed much of the decline to “mean reversion,” with growth in revenue lines returning to more normal levels after a period of what in some areas was “extraordinary growth.” Trading gains, a major contributor to firms’ revenue increases in past quarters, for example, amounted to $4.66 billion; this compares with an average quarterly total of $7.38 billion from fourth quarter 2002 to first quarter 2004. Commission and fee income also lagged in the second quarter 2004, down 12.7 percent from first quarter 2004 to $11.48 billion as trading volume slowed in June. Mutual-fund sales were the bright spot in firms’ revenues, increasing over second-quarter 2003 pace by 15.7 percent.
The decline in profits was somewhat mitigated by firms’ control of expenses. Compensation remained level when seasonally adjusted for bonus payments and accruals. Interest expenses also remained below the second-quarter 2003 level despite increases in the average cost of borrowing and in firms’ use of credit.
The full report is available at http://www.sia.com/research/pdf/RsrchRprtVol5-9.pdf
