Celebration fizzles as Dow misses 3,000 mark Big investment firms are no longer depending on daily trading at the stock market for profits


NEW YORK -- After months of gloom, investors returned to buying stocks with a passion in the first months of 1991, sending the Dow Jones industrial average climbing at a giddy rate -- a rise of more than 500 points since mid-January.

Investors, who had pulled back from the market as losses spread in 1990, are suddenly making money again.

So why is the joy so restrained on Wall Street?

One big reason is that most investment houses are now in so many other lines of business they no longer look solely to the stock market for their profits. In the last decade, firms have expanded their businesses in mergers and acquisitions, securities underwriting and bond trading.

That means that because of their expansion, firms such as Merrill Lynch & Co. and Shearson Lehman Bros., which depended mostly on their retail brokerage operations a decade ago, have much less in profits to gain or lose on daily stock trading.

Much of the expansion has cost Wall Street firms so dearly that they have yet to recover, even as the stock market has rallied. Meantime, the firms, and their well-heeled parents, have to keep paying the overhead and other expenses to stay in those TTC businesses. That quickly sops up revenue, especially when it comes from primarily one source.

"In order to have reasonable returns and pay people a reasonable amount, you have to have a big year across the board, in every business," said Michael D. Madden, co-head of investment banking at Lehman Brothers. "That is why people aren't kicking up their heels."

The market gave investors even more cause for joy yesterday. The Dow briefly spilled over 3,000 twice before easing to 2,973 at the close.

Of course, with Big Board trading volume topping 200 million shares several times this year, many firms have made money from increased commissions, a greater value for their own portfolios and trading profits. And while that makes executives at these firms happy, they have also painfully learned in the last four years that what goes up can come crashing down.

"You're only talking about a change in business for a few weeks," said Donald Marron, chairman of Paine Webber Group, "and you need a period of time before you get an emotional change. All of us have been conditioned in the last few years to brief flurries of improvements followed by declines, so there is a wait-and-see attitude now."

On a pretax basis, Wall Street has earned $250 million to $350 million since the start of the year, or as much as $2 billion at an annualized rate, said Michael Lipper, president of Lipper Analytical Securities Corp. But Lipper said the windfall had not been distributed evenly, with the retail brokerages with low expenses profiting most.

A report sent this month by the Securities Industry Association, a trade group, to the heads of Wall Street securities firms indicated the change from last year.

An informal survey by the group found retail business had jumped between 20 percent and 40 percent since the allied air strikes in the Persian Gulf began in mid-January. Profits from trading, a business that thrives on large movements in the market, also appeared to be good.

"With costs squeezed down, many of you should be experiencing a most welcome profit improvement," the report said.

But at the large investment houses, the money being made on Wall Street this year is not nearly enough to pay for all the employees, office space and technology their businesses require.

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