The U.S. securities industry enjoyed strong resusutls for the first quarter, but performance leveled off during remainder of 2004, the Securities Industry Association (SIA) said today.

While the SIA sees signs of strength heading into 2005, it’s not predicting a return to booming conditions.

“Uncertainty over the impact of rising interest rates, increasing oil prices, U.S. elections, and the Iraq War reduced both investor interest and issuer activity in capital markets during the summer. As these concerns were partially dispelled, activity picked up, and industry performance slightly exceeded expectations in the final quarter of the year,” the SIA says. “Thanks to continued cost controls and still strong productivity gains, though, the industry will post strong profits in 2004 despite only modest revenue growth.”

“The year started strong in all areas,” said SIA senior vice president and chief economist Frank Fernandez, “as the industry’s exceptionally strong cyclical recovery, led by bond issuance activity and trading gains, carried over from 2003. But a combination of weaker summer volume and a generalized decline in rates and fees charged by the industry for most of the products and services it provides to its customers reduced profits to more sustainable levels as the year progressed.”

“Fourth-quarter results will likely prove somewhat better than originally forecast and Wall Street will post a solid performance for the year as a whole,” the SIA predicts.

Pre-tax profits for all broker-dealers doing a public business are expected to be US$19.5 billion, down 19.1% from 2003’s US$24.1 billion.

Gross revenues remained higher after slumping in the two previous years, increasing 3.2% from 2003’s US$212.7 billion to US$219.6 billion, while net revenues increased 0.9%.

While early indications show better-than-expected results for the fourth quarter, firms are expected to continue on a cautious path.

Fernandez identified the underwriting and asset management areas as showing signs of starting strong in 2005. ”We expect equity underwriting and M&A activity to lead growth early next year, with support provided by structured finance, derivative products, and asset management.”

After two years of stagnation, M&A activity picked up in 2004. The value of announced deals grew from US$528 billion in 2003 to US$741 billion in 2004 (11 months annualized).

Markets also picked up, albeit following months of stagnation as investors waited out the summer. From the start of the year through December 10, the Nasdaq composite index rose 6.2%, from 2,003.37 to 2,128.07; the S&P 500 gained 6.8% from 1,111.92 to 1,188.0; and, the Dow Jones industrial average increased 0.9% to 10,543.22 from 10,453.92.