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LOWER INTEREST RATES ENABLE FIRMS TO NEARLY DOUBLE NET REALIZED GAINS FROM TRADING BONDS; INDUSTRY'S GROSS INTEREST EXPENSE BILL DECLINES

LOWER INTEREST RATES ENABLE FIRMS TO NEARLY DOUBLE NET REALIZED GAINS FROM TRADING BONDS; INDUSTRY'S GROSS INTEREST EXPENSE BILL DECLINES
 NEW YORK, Oct. 30 /PRNewswire/ -- The trend of declining interest rates enabled securities industry firms to nearly double net realized gains from bond trading from mid-1989 to mid-1992, the Securities Industry Association said today.
 In addition, because of lower rates, the industry's actual "dollar bill" for interest is shrinking back to 1987 levels, despite larger debt, inventory and more revenue, George R. Monahan added.
 "Non-tax-exempt bond holdings of securities firms tripled from mid- 1989 to mid-1992 as interest rates began to fall and as the steepened yield curve developed," Mr. Monahan, director of industry studies, said in the current issue of "Trends" which highlights significant changes in the securities industry since the market crash five years ago.
 More than half the industry's revenue currently is directly tied to interest revenues and fixed-income instruments; as rates fall, bond prices rise generating both realized and unrealized inventory gains, he said.
 During the first 1992 half, 20 percent of all securities industry revenue resulted from bond trading; 9 percent from underwriting fixed- income instruments and about 27 percent from margin and other gross interest revenues, according to the report.
 "Another phenomenon greatly enhancing securities firm earnings from 1990 to the present was the gradual widening of the yield curve to historic levels," Mr. Monahan said.
 Long bonds paying twice the rate for Treasury bills created an earnings opportunity for firms "long" on long bonds, he said.
 Gross Interest Expenses Less than Compensation
 Another by-product of falling interest rates over the years is a decline in the securities industry's gross interest expense bill, Mr. Monahan said.
 In fact, as interest rates rose in the post-crash environment, gross interest expense skyrocketed to a record $24.1 billion by 1989, outstripping compensation as the largest expense item for the first time. Since that time, the securities industry's gross interest expense bill has fallen in tandem with interest rates, though borrowings still surged, he said.
 Annualized, gross expenses in 1993 would be about $15.7 billion, according to the report.
 -0- 10/30/92
 /CONTACT: Art Samansky or Karen San Antonio of Securities Industry Association, 212-608-1500/ CO: Securities Industry Association ST: New York IN: FIN SU: ECO


CK-AH -- NY048 -- 7085 10/30/92 11:51 EST
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Date:Oct 30, 1992
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