As the close of FY 2013 approaches many investors note that the record setting year they thought 2013 would be, may in fact be a pipe dream. Investors have been faced with a standstill due to the stalemate in Washington D.C. regarding the national debt and the lack of a federal budget.
Investors are not the only ones who have taken note of the dip in trading revenue. Thomas P. DiNapoli, New York’s state comptroller, released a report on Tuesday that indicates even more dismal results in the coming months. According to DiNapoli, the second half of FY 2013 will suffer from the standstill in Washington.
2013 Will Not Match 2012
Last year was a huge year for both Wall Street and the state of New York. This year appeared to be even more promising, after the first half earnings totaled $10.1 billion, but that hope appears to be dashed in light of recent events.
2012 was the third most profitable year on Wall Street, and the state did not miss out on the profit either. New York collected $3.8 billion in taxes last year from Wall Street earnings. However, the second half of this year is shattering the dreams of many investors and government officials who were hoping for new records to be set in terms of revenue earned.
Washington Is Responsible For Decreased Earnings
According to Alexandra Stevenson of Dealbook, DiNapoli has laid the blame for the failure to meet expectations at the feet of the federal government. DiNapoli said “failure to resolve the federal budget and debt ceiling impasse could disrupt the economy and hurt New York City and New York State.” This seems to indicate pretty clearly who is to blame for the loss of revenue on Wall Street.
Securities May Lose Headway Gained Since 2008
In 2007 and 2008 the securities industry showed record setting losses. Many investors lost entire portfolios, and the housing industry suffered a major crash. Following the pains of cramped trading and poor profits, the securities industry was finally beginning to recover and gain a foothold. Four years of high profits were kept going by low interest rates. Three of those four years were record setting years, with higher profits than had ever been set before, according to DiNapoli’s report.
Now, there appear to be many negative signs in the future for Wall Street. Prior to the government shutdown, Wall Street earnings for the third quarter were cramped by interest rate worries and other monetary concerns.
Many companies that are based on Wall Street have had to scale back or sell off assets since the recession. However, many of these companies have refused to cut their life giving assets, but have cut jobs in their less lucrative departments instead.
Who Stands To Profit?
According to Brad Hintz, an analyst for Sanford C. Bernstein, “there are going to be haves and have-nots this year.” So who will fall on the profitable side of this equation?
Hintz believes that many people who will notice nice paychecks this year will be those on the investment banking side of the market. Here is where the most lucrative side of the business is found and mergers and acquisitions may still be carried on.
Hintz stated “how many mergers and acquisitions you have closed at the year-end will determine whether you are a have or a have-not.”
How Will The Future Be Affected?
According to common sentiment on the street, the biggest hurdle for the next quarter will be effects of the sixteen day partial shutdown of the government. The political gridlock had a huge effect on trading when it took place, and the effects may last for a while.
Morgan Stanley’s CFO, Ruth Porat, said she believes the largest obstacle for the markets and the economy as a whole will be the continuing political instability. For her company the most threatening issue is the chance that all of this will damage ongoing mergers and acquisitions that still have not come to fruition.
According to Alan Johnson of Johnson Associates “these banks are no longer the highest payers – we’re no longer talking about the masters of the universe.”