By Brian Kelleher and Jonathan Stempel
NEW YORK, Dec 27 (Reuters) - For Wall Street bankers, 2002 was a year to forget.
Falling stocks, a fitful economy, war threats and corporate accounting scandals curtailed securities underwriting and, for a second straight year, banking revenue.
The year "2002 turned out to be a tougher operating environment than any of us expected," Goldman Sachs Group Inc. Chief Financial Officer David Viniar recently told investors. A meaningful investment banking rebound might not take place until the second half of 2003, he said.
Global debt and equity underwriting fell more than 6 percent from a year ago, to $3.85 trillion from $4.11 trillion, according to preliminary data from Thomson Financial Securities Data.
Citigroup Inc.'s Salomon Smith Barney unit remained the top underwriter, handling $413.8 billion of business. Merrill Lynch & Co. and Credit Suisse Group Inc.'s Credit Suisse First Boston unit again finished second and third.
Fourth-quarter business suggests no hint of a rebound. Underwriting fell 26 percent from a year ago, to $788.1 billion from $1.06 trillion. Salomon, CSFB and Morgan Stanley handled the most business. Merrill Lynch was fifth.
Declines in lucrative stock, initial public offering, and junk bond activity contributed to a steep falloff in fees.
Banks saw $14.1 billion of fees this year, down from $17.9 billion a year ago and $21.2 billion in 2000. Salomon reported $2 billion of fees, followed by Morgan Stanley and CSFB with about $1.2 billion each. In the fourth quarter, disclosed fees fell 40 percent from a year ago, to $2.89 billion.
With less business to go around, banks are slashing payrolls. U.S. banks have cut about 78,000 jobs, or 10 percent, since April 2001, according to preliminary data from the Securities Industry Association, a trade group.
Wall Street uses Thomson's so-called "league tables" to claim bragging rights and win new business. Final year-end data from Thomson are slated for release on Tuesday.
IPO, MERGER VOLUME FALL
Fewer companies chose to go public in 2002 as stocks fell, depriving banks of IPO fees as high as 7 percent. Worldwide, 705 companies went public, raising $60.7 billion, Thomson said, compared with 813 companies raising $91.7 billion in 2001.
Even established companies sold less stock. Global common stock issuance fell 19 percent, to $208.9 billion.
Less business has hurt the bottom lines of Wall Street's traditional equity powerhouses. Last week, Goldman Sachs said fiscal 2002 profit fell 8 percent from a year ago, while Morgan Stanley reported a 15 percent decline.
Salomon handled the most IPO volume in 2002. Goldman Sachs was second, and arranged the year's largest IPO, the $4.6 billion spinoff by Tyco International Ltd. of its CIT Group Inc. unit.
Merger activity, meanwhile, plunged 42 percent, to $454.1 billion, with Goldman Sachs handling twice as much business as any other bank.
"A wicked cocktail made up of a recessionary environment, the overhang of 9/11 and corporate misbehavior has caused everyone to focus inwardly," said Monte Koch, head of mergers and acquisitions for the Americas at Deutsche Bank Securities Inc. "All those things collaborated to make it a very difficult environment for M&A."
FEAR OF CREDIT HURTS
Record bond sales in 2001 helped Wall Street offset declines in equity underwriting. Not so in 2002.
A surge in credit "blowups" and rating downgrades, both to record levels, and scandals involving Adelphia Communications Corp. , Tyco, WorldCom Inc. and others, sent investors to the safety of U.S. government debt.
As Treasury yields fell to 40-year lows, relative yields on corporate bonds swelled to record levels. Ford Motor Co.'s investment-grade bonds in October yielded above 10 percent.
Some banks felt the blowups directly. While J.P. Morgan Chase & Co. , Bank of America Corp. , and Salomon remained the top syndicated loan arrangers, all either reported lower profits or took write-downs from bad loans to the likes of Enron Corp. , fallen dot coms and bankrupt airlines.
Though low rates sparked record mortgage refinancings, fear of credit risk kept a lid on bond issuance, and led investors to such high-quality, less frequent issuers as Campbell Soup Co. , ChevronTexaco Corp. and Gillette Co. .
Even "triple-A" rated General Electric Co. , whose finance arm's $11 billion bond sale in March was the year's largest, came under fire from influential bond guru Bill Gross of Pacific Investment Management Co. for having too much short-term debt and not being totally forthright with investors.
"The trend this year was for a greater number of smaller transactions, especially when volatility around some of the larger issuers heated up," said Jim Merli, global head of fixed-income syndicate at Lehman Brothers.
Issuance of mortgage-backed debt is up 23 percent, to $733 billion, and municipal bond issuance is up 25 percent, to $353.6 billion.
Yet, issuance of investment-grade corporate bonds is down 18 percent, to $549.8 billion; junk bonds down 25 percent, to $58.5 billion; convertible debt off 46 percent, to $59.8 billion; and non-callable U.S. agency bonds down 24 percent, to $317.9 billion. (Additional reporting by Jeffrey Goldfarb and Jake Keaveny)