Turmoil in Wall Street

The mood of stock-market professionals, those money managers for brokerage houses and investment firms who handle billions of other people's assets, is so pessimistic these days that they are talking like mourners at a wake. Their business is in turmoil and trouble: the profits and numbers of brokerage firms are both falling, and brokers are tense about the effect of changes that the Securities and Exchange Commission intends to force concerning the rules they operate under.

But however enthusiastically they may denounce the SEC, securities men know where the real trouble lies. Says Donald Marron, president of Paine, Webber, Jackson & Curtis, Inc.: "The principal problem is the fact that the product we sell has not done very well. We are selling stock at precisely where it was 13 years ago." Some investment professionals are even knocking their own principal product. Says Walter Burns, of the institutional investment advisory firm of Lynch, Jones and Ryan: "There is no longer any haven for institutional investors in common stocks. We are telling our clients to invest all their funds in bonds."

In the first half of this year, trading on the New York Stock Exchange, which accounts for about 80% of the volume on all U.S. exchanges, fell an average of 2 million shares a day below a year earlier. Since prices are down too, brokerage profits are off sharply. In the first six months of 1977, the profits of all securities firms that are members of the N.Y.S.E. were cut by more than half, to $111 million from $293 million in the 1976 period.

Failures and mergers have been reducing the number of brokerage houses throughout the '70s. In 1972 there were 490 Big Board member firms dealing with the public; at the end of June there were 371. Employment of registered representatives, those commission agents who handle customers' orders, has dropped by more than 13% in the past six years. The merger wave is still rolling: Morgan Stanley & Co. Inc., the Rolls Royce of the industry, has an agreement in principle to merge with the small San Francisco firm of Shuman, Agnew & Co. Inc. in order to get salesmen who know how to deal with small investors. Now that common stocks are no longer a favored investment vehicle, brokerage firms are being forced to offer a variety of investment services, from handling tax-free bond funds to trading in commodities.

Brokers' commissions on each stock trade have fallen drastically since May 1975, when the SEC outlawed fixed commissions and ordered brokers to negotiate with traders. The month before, commissions paid by institutional investors averaged 26-c- a share; now they average 14-c- and a big buyer or seller can bargain the rate down to as little as 5-c-. Commissions paid by individual investors have fallen much less--from 30-c- a share on the average to 28.5-c---but that is small consolation to brokers. The vast bulk of their business comes these days from institutions, pension funds and trusts.

Now, the SEC proposes to remove by Jan. 1, 1978, all restrictions that force brokers to execute most trades in exchange-listed stocks on the floors of those exchanges. Its aim is to speed up the creation of a national securities market, where the investor would be able to buy shares at the lowest possible price. But John C. Whitehead, senior partner of Goldman, Sachs & Co., paints an apocalyptic scenario of what will happen if brokerage houses are allowed to bypass the exchanges and make their own deals off the floor.

In a blistering letter to SEC Chairman Harold Williams, Whitehead said: "I believe that within one year of the removal of off-board trading restrictions, more than 50% of all trading in listed stocks will be done off the exchanges. Within two years, I believe that 90% will be done off the exchanges. By the end of three years, I believe the exchanges will no longer exist, except possibly for token trades." This doomsday vision may be vastly overstated, but the fact that a senior industry executive could voice it publicly and seriously is a measure of the gloom on Wall Street.

This file is automatically generated by a robot program, so viewer discretion is required.