UK securities reach record pounds 4.4bn in 1993: Stock Exchange worried that losses in derivatives dealing will spread

THE London Stock Exchange yesterday hailed 1993 as a turning point for the UK securities industry, with revenues for the year rising 53 per cent to a record pounds 4.4bn. But the Exchange's quarterly report also warned that big losses suffered by Wall Street firms this year in derivatives could spread to London.

Pre-tax profits for LSE member firms shot up from pounds 89m in 1992 (which included a pounds 126m loss in the third quarter) to pounds 1.2bn in 1993, making it the most profitable year since the survey began in 1988.

The report also showed revenues surging ahead by a quarter in the second half of last year to pounds 2.4bn.

But expenditure was driven up by a third in the same period to pounds 1.8bn, especially by staff costs, and bumper bonuses as traders took advantage of resurgent markets and falling interest rates. Salary costs leapt by 95 per cent in the fourth quarter compared with the same period in 1992. Bonuses accounted for 29 per cent of staff costs in the last quarter, compared with 13 per cent in the third and less than 10 per cent in the second.

Securities firms enjoyed an average return on capital of 20 per cent, the healthiest rate seen in the past five years. This compared with only 2 per cent in 1992.

The LSE survey suggests that increasing volatility of dealing revenues is likely to pull profits down from 1993 levels. Figures for equity trading and capital-raising indicate, however, that levels of commission revenue and corporate fees will be maintained.

The LSE warns: 'Heavy dealing losses among US firms have been widely reported and may be repeated in the London market, particularly among firms more committed to proprietary trading.'

Very large and very small securities firms have been the most consistently successful in the past year, the Stock Exchange said.

New issues activity broke all records in the five months to May 1994. A total of 116 new companies were listed in the first five months, raising pounds 6.6bn, bigger than the pounds 5.9bn raised by 180 companies during the whole of 1993.

The figures reveal a resurgence of activity in manufacturing, which is emerging from recession. General manufacturers raised over pounds 900m in the first quarter this year, more than four times as much as in the previous three months ( pounds 221m).