Wall Street Loses Ground as the Market Booms

Wall Street banks have failed to keep up with the stock market during its more than five-year boom, falling behind industries such as technology and health care. There were just 32 U.S. financial firms among the world’s largest 500 companies by market value when trading closed on Dec. 18 in New York. That compares with 41 at the end of 2006, the last full year before the credit crisis. Some companies that remain on the list, such as Citigroup (C) and American International Group (AIG), have shrunk to a fraction of the size of tech giants like Apple (AAPL) and Google (GOOG).

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Goldman Sachs (GS) has a lower market value than it had at its peak in 2007. While Google and Apple have been adding products and customers since then, Wall Street has lost trading revenue and spent much of that time repaying bailouts, settling government probes, or divesting assets under pressure from federal watchdogs. “The culture in the large banks needed to be corrected,” says Charles Peabody, a banking analyst at Portales Partners. “That is a good thing. The extent of this adjustment process has been a lot more drawn out than any of us anticipated, and that’s not been a good thing.”

Goldman Sachs went public in 1999, the same year that President Bill Clinton signed the law that repealed barriers between commercial and investment banking. The bank’s market capitalization as of Dec. 18 had dropped about 21 percent from the peak in October 2007 of more than $105 billion. U.S. financial companies now make up about 8.1 percent of the market value of the world’s largest 500 companies, compared with 9.7 percent at the end of 2006. Companies that disappeared from the top-500 list include Lehman Brothers, which filed for bankruptcy protection in 2008, and Merrill Lynch, which struck a deal the same year to sell itself to Bank of America (BAC).

U.S. health care’s share in the top 500 climbed to 7.6 percent as Johnson & Johnson (JNJ) and Amgen (AMGN) expanded. Technology advanced to 7.5 percent from 5.3 percent. Apple is the world’s largest company, up from No. 98 at the end of 2006. Goldman Sachs dropped to 94th from 63rd in that span. David Wells, a spokesman for the bank, declined to comment. Citigroup, which was the first U.S. lender to adopt the universal banking model combining commercial and investment banking, has plunged to No. 35 from fourth.

Wells Fargo (WFC), which gets most of its revenue from consumer, corporate, and real estate lending, is now the most valuable bank in the world. “Revenue growth has been lacking as a generality in the banking industry,” says Peabody. “Wells has been doing a better job, in part because it’s not as exposed to the capital markets.”

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24 December 2014 | 1:14 am – Source: businessweek.com


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