WS Endure Lost Decade

Wall Street Firms Endure Lost Decade After Goldman Peak in 2007

By Jing Cao Dec 19, 2014 12:00 AM E

Wall Street firms have failed to keep up with a stock market that’s boomed for more than five years, losing ground to industries including technology and health care.

There were just 32 U.S. financial firms among the world’s largest 500 companies by market capitalization when trading closed yesterday 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, like Citigroup Inc. and American International Group Inc. (AIG), have shrunk to a fraction of the size of tech giants like Apple Inc. (AAPL) and Google Inc. (GOOGL)

Goldman Sachs Group Inc. (GS) has a lower market value than its peak in 2007. While Google and Cupertino, California-based Apple have been adding new products and customers since then, Wall Street 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,” Charles Peabody, a banking analyst at Portales Partners LLC in New York, said in a phone interview. “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 into law the repeal of barriers between commercial and investment banking. Market capitalization as of Dec. 18 dropped about 21 percent from the peak in October 2007 of more than $105 billion.

Financial firms that fell off the list include Lehman Brothers Holdings Inc., which filed for bankruptcy protection in 2008, and Merrill Lynch & Co., which struck a deal the same year to sell itself to Bank of America Corp. The U.S. group now makes 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.

Wells Fargo

U.S. health care’s share climbed to 7.6 percent as Johnson & Johnson and Amgen Inc. expanded. U.S. 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 94 from 63 in that span. David Wells, a spokesman for the New York-based bank, declined to comment.

Citigroup, which was the first U.S. lender to adopt the universal banking model, has plunged to No. 35 from fourth. Wells Fargo & Co., which derives most of its revenue from consumer, corporate and real estate lending, is now the most valuable bank in the world.

“Wells is one of those organizations that show their ability to execute” and produce a higher return on equity than competitors, Peabody said. “Revenue growth has been lacking as a generality in the banking industry. Wells has been doing a better job, in part because it’s not as exposed to the capital markets.”

To contact the reporter on this story: Jing Cao in New York at [e-mail]

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