The summer's economic turmoil abroad has severely clipped profits at the country's major investment banks.
Such venerable Wall Street firms as Goldman, Sachs & Co., Lehman Brothers, and Morgan Stanley, Dean Witter & Co. reported last week that earnings had fallen fell in the fiscal quarter that ended Aug. 31.
A major reason for the declines, analysts said, was turmoil in the bond market.
With equity markets so uncertain, investors are buying U.S government debt and shedding stocks and corporate bonds, causing spreads for nongovernment debt to soar.
The impact of this worldwide convulsion is hardly confined to Wall Street. Some companies could be facing cash crunches soon unless fixed- income markets calm down.
The most vulnerable companies are those selling asset-backed securities, analysts say.
Westcorp, an Irvine, Calif.-based company that operates a thrift called Western Financial Bank and a subprime auto lending business, said last week that it would skip its third-quarter securitization offering. It expects to report a loss for the quarter.
"Although we believe we can successfully execute a securitization transaction, we have decided to wait until sometime in the fourth quarter," chief operating officer Joy Schaefer said.
But such decisions could weaken companies like Westcorp, some analysts said. Even if spreads narrowed for most bonds, such companies might have to pay high rates on any new debt they issued.
SLM Holdings, better known as Sallie Mae, said this month that it would stop securitizing student loans on its books until the bond market calmed down, permitting more favorable terms.
Sallie Mae issued $3 billion worth of securities in the first two quarters, but analysts say there is ample reason to avoid the market now.
"Spreads are wider than they've been for five years," said Dan Castro, a Merrill Lynch & Co. analyst of asset-backed securities. "So some issuers are deciding that if they don't need the funding, they'll wait until the market calms down."
Beth Starr, an asset-backed analyst at Lehman Brothers, agrees.
"Anyone who can avoid issuing at the end of the quarter should," she said.
Foreign banks also have opted out of the market lately.
Bank of Tokyo-Mitsubishi and Dai-Ichi Kangyo Bank said this month that they would pull $2.25 billion and $1.7 billion offerings, respectively, of collateralized loan obligations.
Newcourt Credit Group, a Toronto-based finance company, is another regular securitizer that is taking a break this quarter, analysts say. "If you have flexibility, you should wait," said Lehman's Ms. Starr.
The financial hits to firms such as Goldman Sachs and Lehman Brothers compound difficulties for would-be bond issuers.
Typically, underwriters are willing to take into inventory for later sale any unsold portion of a bond offering. But with the market for so many kinds of debt effectively shut down, the big underwriters are not so willing to do that.
"No one wants to put anything in inventory these days," said Reilly Tierney, an analyst at Fox-Pitt Kelton Inc. in New York.