While the numbers will not be known until after the third quarter ends and financial companies begin reporting earnings in October, the pace of trading this summer was slow even by normal summer standards. Trading in shares listed on the New York Stock Exchange was down by 11 percent in July from 2009 levels, and August volume was off nearly 30 percent.  “What’s happened in the third quarter is that after a very slow summer, people expected things to come back,” said Ms. Whitney. “But they haven’t, and the inactivity is really squeezing everyone.”  The downward slide on Wall Street parallels a similar shift in the broader economy, which has slowed considerably since showing signs of a nascent recovery this spring. And if banks come under pressure, all but the safest borrowers may struggle to get loans.  With less than two weeks to go in the third quarter, companies will be hard-pressed to fulfill earlier, more optimistic expectations.  “It’s like the marathon: if you’re five miles behind, you can’t make that up in the last 10 minutes of the race,” said David H. Ellison, president of FBR Fund Advisers, a money management firm that specializes in financial companies. Many banks are barely scraping by in traditional Wall Street business.  As a result, executives, portfolio managers and analysts say that even the mighty Goldman Sachs, which posted a profit every day for the first three months of the year, is unlikely to deliver the kind of profit growth that investors have come to expect.  Keith Horowitz, a bank analyst at Citigroup, said he expected Goldman Sachs to earn $7.8 billion in 2010, a 35 percent decline from the $12.1 billion it made last year.  The drop in trading translates into lower commissions for brokerage firms, as well as a weaker environment for underwriting initial public offerings and other stock issues, traditionally a highly lucrative niche.  Banks are also scaling back on making bets with their own money — known as proprietary trading — another huge profit source in recent years that will soon be forbidden under terms of the financial reform legislation passed by Congress this summer.  Indeed, analysts have finally started to bring their forecasts in line with the new reality. On Sept. 12, Mr. Horowitz reduced his estimates for third-quarter profits at Goldman and Morgan Stanley.  Mr. Horowitz had predicted Goldman would make $1.75 billion in the third quarter, or $3 a share; he now expects Goldman’s profit to total $1.34 billion, or $2.30 a share. For Morgan Stanley, his revision was even steeper, with earnings expectations revised downward to $140 million, or 10 cents a share, from $726 million, or 53 cents a share.  Mr. Horowitz’s estimates are considerably lower than the consensus among analysts who track the two companies. If the other analysts revise their estimates closer to his, they would put pressure on the shares.  One of the rare bright spots for Wall Street recently has been the issuance of junk bonds, as ultra-low interest rates encourage investors to seek out riskier debt that carries a higher yield. But that will not be enough to offset the weakness elsewhere, said one top Wall Street executive who insisted on anonymity because he was not authorized to speak publicly for his company, and because final numbers would not be tallied until the end of the month.  To make matters worse, he said, many Wall Street firms increased their work forces in the first half of the year, before the mood shifted and worries of a double-dip recession arose. If activity remains anemic, firms could soon begin cutting jobs again.  “I think the summer was horrible for everyone, and no one expected it to be as bad as it was,” he said. “It’s coming back a little bit in September but nowhere near enough to make up for what happened in July and August.”  The profit picture is brighter for diversified companies like JPMorgan Chase and Bank of America, which have larger commercial and retail banking operations in addition to their Wall Street units, but some analysts say earnings expectations for them could come down as well.  “Estimates still seem a little high, and the revenue story for all the banks is not a good one,” said Ed Najarian, who tracks the banking sector for ISI, a New York research firm.  With interest rates plunging, banks are making less off their interest-earning assets like government bonds and other ultra-safe securities. At the same time, demand for new loans remains weak.  One wild card will be the credit card portfolios at major banks like JPMorgan, Bank of America and Citigroup. As delinquencies ease, Mr. Najarian said, credit losses are likely to decline. That trend helped earnings at JPMorgan in the second quarter, and could be crucial again in the third quarter.  Ms. Whitney says the gloomy short-term predictions foreshadow a series of lean years in the broader financial services industry.  Indeed, she said the Street faced a “resizing” not seen since the cutbacks that followed the bursting of the dot-com bubble a decade ago.  “We expect compensation to be down dramatically this year,” she wrote in a recent report. She predicts the American banking industry will lay off 40,000 to 80,000 employees, or as many as 1 in 10 of its workers.  That may be extreme, but Ms. Whitney argues that the boom years are not coming back anytime soon. As both consumers and companies cut back on debt, and financial reform rules put the brakes on profitable niches like derivatives and proprietary trading, the engines of earnings growth for the last decade will continue to sputter.  A version of this article appears in print on September 20, 2010, on Page A1 of the New York edition with the headline: Profit Engines On Wall Street Turn Sluggish. Order Reprints| Today's Paper|Subscribe
Inside the great investment houses on Wall Street, business has taken a surprising turn this summer — downward.