NEW YORK The day before Goldman Sachs Group Inc. was to manage its biggest U.S. initial public offering since October, the clients owner, Nextel Communications Inc., disclosed it was signing up fewer users than expected.
Nextel shares plunged and it shelved the $660 million IPO, which had been planned for last Thursday, of its Nextel International Inc. unit. Goldman and other firms arranging the IPO lost fees of about $46 million.
It has been that kind of year for investment bankers. A global rout in stocks has scuttled mergers and IPOs two of their most profitable businesses a year after these reached record highs.
Its a tough market, said Marc Paley, head of global equity capital markets at Lehman Brothers Holdings Inc., which has taken three companies public this year. Its going to be a long time before we see a comeback.
Just how much Wall Street profits are shrinking will become clearer this week when Goldman, Morgan Stanley Dean Witter & Co., Lehman, and Bear Stearns Cos. report earnings for the quarter that ended Feb. 28. Analysts expect declines of at least 25% from the year earlier, when securities industry profits peaked.
Most people are expecting the worst, said Tom Goggins, portfolio manager at John Hancock Advisers Inc. in Boston. Mr. Goggins runs the $3 billion financial industry fund, which listed Morgan Stanley, Lehman, and Merrill Lynch & Co. among its top 20 holdings as of October. The key thing investors will focus on is: How are they going to cut costs?
Bear Stearns has announced 400 job cuts. Credit Suisse First Boston is eliminating about 2,700 jobs. Morgan Stanley said it is considering cuts. For the financial industry, about 10,000 layoffs have already been announced the most since 1998, when Russias default sent world markets reeling.
In the first quarter this year and last, Morgan Stanley was the leader in mergers and acquisitions. This year, the value of its 68 deals was $130 billion. In the same period the preceding year, the value of its 69 mergers and acquisitions was $352 billion.
Goldman slipped to No. 5 in mergers and acquisitions, from No. 3 in the first quarter last year. This year, it handled 65 transactions, worth $83.6 billion, compared with 99 deals, worth $227 billion, the year before.
The market for IPOs has slowed to a crawl. Morgan Stanley arranged $3 billion of U.S. sales, compared with $8.8 billion in the first quarter of last year. Goldman Sachs, last years No. 1 equity underwriter, arranged $3.5 billion of U.S. stock sales in its first quarter, down from $7 billion last year.
Analysts said firms with more emphasis on bond underwriting, such as Lehman, may have weathered the first-quarter storm somewhat better, as bond sales began to surge early this year.