US investment banks could cut more jobs

A string of mega-investment banks yesterday revealed further evidence that 2002 has been one of the worst years for the sector, showing more pain from the lack of the mergers and acquisitions and corporate finance business.

Goldman Sachs, Morgan Stanley and Lehman Brothers suffered continued weakness from the lack of investment banking revenues, preparing the City for further lay-offs in 2003.

Goldman and Morgan Stanley together axed more than 8,200 staff over the past 12 months, and Lehman let go 637 people in fourth quarter alone.

Goldman revealed investment banking income fell by a quarter in 2002 to $2.83bn (£1.77bn). Revenues from equities trading were down 66 per cent to just over $1bn.

The bank, which has proved itself to be one of the most resilient in the current downturn, made a profit of $2.11bn in 2002, 8 per cent up year on year. Goldman attributed it to the rigorous cost controls it has implemented, including cutting its headcount by 13 per cent this year and slicing average pay by 12 per cent.

Goldman was also helped by a bumper third quarter in fixed income business, which fell by 40 per cent in the fourth quarter.

Lehman Brothers suffered a fall in full-year profits of more than 20 per cent to $1.03bn. Its return on equity fell heavily to 12 per cent from 16 per cent.

Morgan Stanley beat analysts' expectations with profits of just under $3bn, but had to reveal that its fourth quarter was the ninth decline in quarterly profits. Its fixed income division also suffered a 22 per cent fall in trading revenue, after a subdued third quarter.

Philip Purcell, the chief executive and chairman of Morgan Stanley, attributed the performance largely to the strength of the bank's credit cards business.

Mr Purcell added: "2002 was an extremely challenging year, especially on the heels of a very difficult 2001. Industry-wide declines in the level of activity significantly depressed revenues in our securities and asset management business."

Lehman had a strong performance in its fixed income business, contributing to an 87 per cent rise in principal transactions in its fourth quarter.

But revenues were down 9 per cent to $6.2bn, hit by declines in underwriting and mergers and acquisitions advisory income.

In contrast Bear Stearns saw a 23 per cent rise in earnings to $190.5m in the fourth quarter, helped by a strong performance in fixed income business such as bond trading.