Investment banks are entering a tricky time as the economy slows and deals dry up. Goldman Sachs' latest earnings showed an increase of just 3% on the same quarter in 1999, a far cry from the double-digit increases of recent years. And for the second quarter in a row Morgan Stanley Dean Witter missed the analysts' earnings consensus. Last time it was by eight cents, half of that coming from a $45 million loss in its high-yield business, a fact which annoyed investors as the firm appeared determined to conceal it. This quarter, it was 23 cents off, which it put down to increased compensation costs, losses in equity investments, and lower underwriting and trading volumes.
If these two are suffering, the rest must surely be hurting. ING, of course, is selling off the US division of ING Barings, and Prudential Securities, having pulled out of trading US government bonds in late summer, announced in December that it would be closing its investment bank down, bar a few bankers and the research department
JP Morgan Chase has also hit trouble. Some of it is part of the industry-wide problem. Chase has mounting bad loans on its books, is having to reassess downwards it Chase Capital Partners' investments and has seen its trading drop.