Its not just broker/dealers clients who are experiencing lower net worth. The companies themselves have seen a decline in net worth of $884 million, or 1.9%, between year-end 2001 and year-end 2002, according to a report from Weiss Ratings.
Weiss evaluated the financial statements of 354 brokerage firms and found that, while net worth declined during that period, net capital increased, in part because of an increase in subordinated liabilities. "Essentially, firms replaced solid equity, earned from operating profits, with debt and then shifted to more liquid assets, which has the effect of improving net capital," said Melissa Gannon, VP at Weiss.
Broker/dealers are required to maintain certain levels of capital by the Securities and Exchange Commission. The brokerage firms with the largest year-over-year declines were: Deutsche Bank Securities ($2.079 billion, for a decline of minus 31.6%), E*Trade Securities ($385 million, minus 76.6%), Shelby Cullom Davis ($369 million, minus 17.6%), UBS Painewebber ($278 million, minus 10.4%) and SG Cowen Securities ($265 million, minus 26.7%).
Brokerage firms with the highest ratios of net capital to required net capital were : Shelby Cullom Davis (5,528), BNP Paribas Securities Corp. (1,569), Wachovia Securities (577), SG Cowen Securities (478) and Wells Fargo Brokerage Services (471).
Brokerage firms with the lowest ratios of net capital to required net capital were: Brean Murray & Co. (1.3), Empire Financial Group (1.3), Pan-American Financial Services (1.5), Direct Brokerage (1.5) and Great American Advisors (1.8).