NYC-WTC_000195490

NYC 9/11 Public Portal Document

ign I presence in the U.S. Deutsche Bank expanded its U.S. presence with the purchase of Bankers Trust in 1999. ew I The following year, Credit Suisse, which already owned First Boston, a U.S. investment banking firm, bought ital L Donaldson, Lufkin & Jenrette, to gain market share in high yield bond underwriting. With an increase in ? investment banking arid mergers and acquisitions in European and Asian markets, American banks and on brokerage firms have expanded their presence in these regions by acquiring local financial institutions. Simultaneously,' banks have sought to reduce overcapacity, to achieve global economies of scale and an increase automation, in an unrelenting quest for cost reductions. This drive for economies of scale and ed reduction in overcapacity is seen in many of the recent bank mergers, like J.P. Morgan Chase taking shape in from the predecessors of Chase, J.P. Morgan, Chemical and Manufacturers Hanover. With such mergers the rad I order of the day, many bank branches have been closed and consolidated across the country. In New York if- City alond, this has resulted in a decline of almost 40 percent in bank employment since 1990. The ht introduction of ATM’s and on-line computer banking is another visible indication of this drive to cut costs. / ■ I \ ■ / /

As a result of these changes, large New York City banks now have diverse revenue sources and in many ;d ways behave more like investment firms than traditional banking institutions. Some banks actually earn more id of their revenues from investment banking services and fees than interest income. For examplin, banks’ share of lead-managed underwriting deals in the U.S. has increased from less than 13 percent in 1994 to over 50 5t percent in 2000 for corporate bonds, from 33 percent to over 50 percent for asset-backed bonds, and from >r three percent to 33 percent for equities. '

In recent years, banks for the most part have been highly profitable. A soaring stock market and a strong national economy, with high levels of consumer borrowing, have led to record revenues. This streak of n 3 profitability continued into the first half of calendar year 2 with banks participating in the record levels of S I underwriting and merger-and-acquisition activity in the U.S. and overseas. In the second half of calendar year I 2000, volatility slowed underwriting and pushed some trading desks and venture capital investments quickly I from profit to loss. However, operating earnings at most banks for calendar year 2000 were close to or I exceeded the' prior year’s levels, despite the fact that mergers-and-acquisitions charges resulted in year-over- : year declines in profits at several banks. ' . The recent economic slowdown as well as the continuing volatility in equity markets will have a negative impact on bank earnings, even though interest rate cuts in 2001 are already boosting lending activity, I particularly eonsumer lending. Because of the decline in quality of some commercial loans in calendar year < 2000 and the current negative economic sentiment, commercial lending is not expected to rebound quickly this P year. Non-interest revenues from.fees and capital markets activities are also expected to be depressed. Forecast: The 2001 banking corporation tax forecast has been lowered by $31 million to $357 million, an increase of ?.9 percent from the prior year. The 2002 forecast is unchanged from Financial Plan at $359 million, an increase of 0.6 percent from 2001.

Through March, banking corporation tax collections have increased by 17.3 percent from the prior year period., Most of the growth in collections is due to large commercial banks whose payments have rebounded iS from the prior year period. Although most of these banks were highly profitable in calendar year 1999 and the first half of calendar year 2000, their quarterly payments had been suppressed by overpayments and credits from prior years. Collections for the remainder of the year are forecast to decline over the prior year with the first estimated payment for tax year 2001 (paid in June) reflecting a difficult environment on Wall ^Street during the first half of the tax year.

Growth in net revenue would be significantly improved in 2001, but for year-to-date refunds which have increased 95 percent over the prior year. The higher refunds are a result of overpayments by some banks being taken this year as refunds. j

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