Finance & Business World

Wall Street banks battered by mortgage and credit losses survived 2007 only to face an even bigger challenge: a U.S. economy on the edge of recession.

Tougher conditions mean investment bank revenues could finally retreat for the first time since 2003, when Wall Street caught hold of a rally that generated a series of record results and only ended last summer.

Goldman Sachs Group Inc stood out last year, profiting by making the right bets ahead of the subprime debacle that bloodied rivals. But if markets worldwide indeed shrink this year, not even Goldman and its trading wizards can keep defying gravity.

“If there’s a recession, business will slow down for everyone, even the vaunted Goldman Sachs,” said James Ellman, president of financial services hedge fund firm Seacliff Capital LLC in San Francisco.

Stocks plunged this week amid worries the United States economy would slow or even shrink savings account payday advance. Bank stocks, though, rallied since the Federal Reserve on Tuesday slashed interest rates and fueled optimism that central bankers can stave off recession.

Many analysts and investors say if the economy struggles, Wall Street will start to see declines in merger advisory, underwriting and financing activity. Money management and brokerage businesses will also suffer.

Morgan Stanley said on Thursday it would cut jobs amid concern revenue will slip this year. According to a person briefed on the moves, more than 1,000 jobs, or 2 percent of employees, will go, the latest in a series of job cuts on the Street.

TIED TO MARKET 

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