Any optimism on Wall Street that slowdowns in underwriting activity, mergers and acquisitions, merchant banking deals, and fixed-income trading will abate in time to spare the top financial firms serious profit damage has evaporated.

But even as analysts cut their 2001 forecasts for the biggest financial companies to account for an anticipated downturn, some think the market has already overestimated the damage the biggest firms will suffer.

One reason to perceive a market overreaction, the thinking goes, is that the coming year may reward the giant firms because such periods tend to drive market share to the top tier, sometimes at the expense of smaller players.

Joan Solotar of Credit Suisse First Boston reduced her fourth-quarter estimates for brokerages across the board on Friday, citing weakness in mergers and acquisitions, underwriting, merchant banking, and fixed-income trading.

However, she said, the degree to which a weak market affects banks will depend in part on their differences in business mix and market share. This reality was a rationale for the recent merger race — as companies sought to gain a position among the eventual handful of global powers — because blue-chip clients of top firms tend to be the ones most likely to tap in to capital markets in a downturn. “Generally when markets weaken, you see share accrue to tier-one players,” Ms. Solotar said.

From a business-mix viewpoint, however, plenty of cause for concern remains. If investors have become accustomed to watching financial stocks trade in an inverse relationship to tech stocks — investors abandon financials when techs are running — they may soon remember how reliant financials have become on the tech boom.

Steve Eisman of CIBC Oppenheimer downgraded his estimates of Chase Manhattan and Bear Stearns to “hold,” from “strong buy,” late last week. “The investment banking business is related to tech, and tech is doing terribly,” he said. “Sixty-five percent of underwriting volume is tech-related, and tech ain’t coming back so fast.”

Underwriting has become a lagging business line. The 50 initial public offerings completed so far this quarter, raising $7.64 billion, were far fewer than the 144 in the third quarter, and they pale in comparison to the 166 in the fourth quarter of 1999, according to Thomson Financial Securities Data.

And, so far this quarter, there have been 1,406 merger and acquisition deals, totaling $306.6 billion. There is little time to match the 2,628 deals, worth $374.7 billion, done in the fourth quarter of 1999, according to Thomson Financial Securities Data.

The numbers suggest that Citigroup Inc., the most diversified of the U.S. financial companies, may well weather the coming year better than the rest of the group, Merrill Lynch analyst Judah Kraushaar said last week.

In an evaluation of the earnings sensitivity of the top U.S. financial companies to a slowdown in leveraged finance — an area where new issuance has dried up — Mr. Kraushaar said Citi’s earnings-per-share risk appeared to be “about half” that of its peer group because of its superior diversification.

Whether this adds up to an argument for investing in such companies remains under debate.

Given how much of a markdown the stock market has allocated to some top financial stocks, Ms. Solotar said, the biggest names might reflect good value.

“Much of the decline in earnings has already been recorded in stock evaluations. For larger names, we don’t see that much more downside,” Ms. Solotar said. Charting the course of the stocks over the near term could be tricky, she said, coming down to mundane issues like the calendar.

Companies like Goldman Sachs and Lehman Brothers report earnings based on a fiscal year ended in November, but most banks report on a calendar year basis and may be slower to show a recovery.

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