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This is one of several trends shaping the industry. Others include:
Industry Underwrites Nearly $3 Trillion In U.S. For Second-Straight Year
The securities industry raised an estimated $2.9 trillion of capital for U.S. businesses in 2004 (annualized based on nine months of data) through corporate underwriting activity in the United States. This marks the second-straight year in which nearly $3 trillion was raised for businesses through the sale of newly issued stocks and bonds to the general public. In the last five years alone, the industry raised approximately $12.8 trillion for U.S. businesses, an amount that already surpasses the $12.4-trillion total raised during the 30-year period from 1970 to 1999.
IPO Activity Rebounds In 2004
The amount of equity raised in the U.S. market for new, start-up, and small U.S. businesses through the sale of initial public offerings rebounded in 2004. After a three-year downturn from a record $76 billion in 2000 to a mere $16 billion in 2003, dollar proceeds from initial public offerings rose to $42 billion in 2004 (based on nine-months annualized data).
Share Volume Remains High As Stock Prices Flatten
Average daily share volume on the New York Stock Exchange and NASDAQ Stock Market remains strong. Based on data through September 2004, average daily volume on the NYSE was 1.44-billion shares. NASDAQ’s average daily volume during the same time period was 1.78-billion shares. These figures are roughly two times the daily average traded just five years ago.
In addition, stock market performance was mixed through the first nine months of 2004. The Dow Jones Industrial Average decreased 3.6 percent and the NASDAQ Composite Index lost 5.3 percent, while the NYSE Composite Index increased two percent and the S&P 500 Stock Index inched up 0.2 percent.
Cross-Border Trading Has Grown Dramatically Since 1980
As Americans’ ownership of securities increased from 1980 until today, so, too, did their investment activity in foreign securities. From 1980 to today, U.S. gross activity (both purchases and sales) in foreign securities grew dramatically from $53 billion to almost $7.4 trillion today (annualized based on data from the first eight months of 2004). Foreign gross activity in U.S. securities has also grown exponentially from $198 billion in 1980 to $32.95 trillion today (annualized based on data from the first eight months of 2004).
Foreign Investors’ U.S. Portfolios Reached Record Valuations; U.S. Holdings’ Valuations Jump In 2004
The total value of Americans’ holdings in foreign securities increased significantly in 2004, jumping from $1.9 trillion in mid-2003 to almost $2.5 trillion through the first half of 2004 (and closing in on year-end 1999’s peak value of $2.5 trillion). Additionally, the ongoing net purchases of U.S. securities by foreigners continued to bring the total value of their U.S. portfolios to a new high – now standing at more than $5.8 trillion by mid-2004.
Individual Ownership In Securities Grew Steadily As Households Shifted Asset Ownership Mix
Nearly three-fourths of Americans’ liquid financial assets today are invested in securities-related products, such as stocks, bonds, and mutual funds (73 percent), with the balance in bank deposits and certificates of deposit, according to Federal Reserve data. In 1975, more than half of Americans’ assets were in bank deposits (55 percent). The total value of assets grew from $1.7 trillion in 1975 to a peak of $19.3 trillion in the first quarter of 2000, before falling back to $16.5 trillion by mid-year 2004 (a 10-fold increase since 1975).
Individual Ownership Of Equities In The U.S. Continues To Grow
Over the last two decades, the growth in individual investor participation has risen from 30.2-million U.S. shareowners in 1980 to 84.3 million in 2002. The percent of U.S. households owning equities (either stock or stock-mutual funds) has likewise grown, from 32.5 percent in 1989 (the first year data are available) to almost half in 2002 (49.5 percent), according to a survey published in 2002 by the Investment Company Institute and SIA, Equity Ownership In America.
A sustained period of economic growth, a record bull market, baby boomers’ need to prepare for retirement, and the change in employers’ retirement programs from defined-benefit to defined-contribution plans all led to the steady growth in equity ownership over the past three decades.
Securities Industry Pre-Tax Profits Dip In 2004
Pre-tax profits for all broker-dealers doing a public business in the United States are forecast to reach $18.9 billion in 2004. Although these results are 22 percent below the $24.1 billion recorded in 2003, it represents the fourth most profitable year ever for the industry. Total revenues are forecast to reach $216.3 billion in 2004, up 1.7 percent from last year.
U.S. M&A Activity Continues To Stagnate
The dollar values of announced and completed merger-and-acquisition deals for U.S. target firms fell sharply from the peak in 2000, reflecting the major market correction and the slow economy. However, this year has already seen a modest improvement compared to a slow 2003. Annualized based on nine months of data, dollar volume of announced and completed M&A deals is expected to total $757 billion and $669 billion, respectively, in 2004. This is a far cry from 2000’s peak of $1.741 trillion and $1.768 trillion, respectively.
Industry Employment Has Been Slowly Rising Since May 2003’s Low
Securities and commodities industry employment reached an all-time high of 840,900 in March 2001, then declined 9.9 percent over the next two years to a low of 757,800 jobs in May 2003. Since May 2003, employment has risen, mirroring the increase in industry revenues and pre-tax profits for the year.
Between 2001 and 2003, the securities industry went through one of its worst contractions. The industry lost 83,100 jobs nationwide between the peak of 840,900 in March 2001 and the recent low of 757,800 in May 2003. Since the May 2003 low, the industry has regained a total of 35,800 jobs – a 4.7-percent increase over the past 16 months to 793,600 in September 2004, or a recovery to date of less than half the job losses from peak to trough.
SIA’s “Key Trends In The Securities Industry” is at:
http://www.sia.com/research/html/key_industry_trends_.html.
