Cracked by crisis, a pillar holds up

A few years ago, thousands of people rushed into the housing market - selling mortgages, appraising homes, brokering deals - with hopes of cashing in on soaring home prices. At the peak in 2005, about 3,200 people jammed the mortgage banking industry’s biggest regional conference. But at the latest annual gathering a few weeks ago in Providence, it was a more sedate affair. Just 900 showed up - similar to attendance in 1999 before the real estate market took off.

“We’re back to square one,’’ said Cuff, executive director of the Massachusetts Mortgage Bankers Association.

That’s a common feeling in the state’s financial services sector, long considered a pillar of the Massachusetts economy. The stock market is lower than it was a decade ago. Many banks have become hesitant about lending, particularly for large construction projects. Fat bonuses have gone on a diet. And financial jobs are harder to find.

The industry - which includes mutual funds, money managers, banks, insurers, and mortgage brokers - had 206,800 employees in September, about 13,500 fewer jobs or 6 percent less than the year before, according to state labor figures. And research firm Moody’s Economy.com estimates employment could fall an additional 2 percent or more by next summer.

In addition, many industry executives and economists say a wave of mergers could sweep the sector, while Congress considers rules to reshape the industry.

“We’re in an unusually unstable period,’’ said Eric S. Rosengren, president of the Federal Reserve Bank of Boston. “It’s too soon to know how this shakeout is going to occur.’’

Many financial executives, however, say they are seeing glimmers of hope. The S&P 500 has surged 59 percent since hitting 12-year-low in March, and investors are starting to pour money into local mutual fund companies. Housing prices have started to rise. And some insurers are selling more policies. That in turn has led some companies to start slowly expanding after months of cost-cutting.

Local mutual fund executives are particularly optimistic because the rising stock market has boosted investment assets and encouraged investors to start buying funds again. Investors have contributed more than they have withdrawn for five straight months, according to the Investment Company Institute, an industry group. Most investment companies earn fees for every $1 invested in their funds, so the higher the asset levels, the higher their revenue and profits.

But here’s why companies remain cautious: Investors, who withdrew nearly $234 billion from stock mutual funds last year, have added only $15 billion to funds through the first nine months of this year, according to the Investment Company Institute.

At MFS Investment Management, for example, assets under management climbed to $175 billion at the end of September from $124 billion at the end of March. But that’s still lower than its peak of $200 billion at the end of 2007. The mutual fund company, which has 1,500 employees in Boston and Quincy, shed 5 percent of its staff after last fall’s market crash but plans to add only about 50 jobs over the next year, most of them overseas.

“We have been through quite a volatile period,’’ MFS chief executive Robert Manning said. “The markets went down and they have rebounded just as fast, but there has certainly been a lot of damage.’’

At Fidelity Investments, assets under administration have jumped 8 percent to $2.8 trillion in the first half of the year but that doesn’t make up for the 23 percent drop in 2008. Fidelity president Rodger Lawson recently said the financial services giant, which cut 3,000 jobs over the past year, doesn’t plan any further major cuts but is not going on a hiring tear either.

“We’re trying to stay lean and charming,’’ Lawson said in an August interview. “You need to be very efficient in this marketplace.’’

Many industry executives say a wave of consolidation could shake the mutual fund industry as firms buy smaller or weaker competitors or sell units that don’t fit their core business. One example: Bank of America Corp. is selling the bulk of its Columbia Management mutual fund unit, which is based in Boston, to Ameriprise Financial Inc. for as much as $1.2 billion.

“We’re a maturing industry,’’ said John Hailer, who runs the North American unit of Natixis Global Asset Management, a company that has about 1,100 employees in Boston. ’’You’re going to see some consolidation.’’

On the banking front, local institutions have reported lower profits, higher loan losses, and increased government insurance fees. Yet most community banks remain in the black, and a few are trying to grow.

Independent Bank Corp., the parent of Rockland Trust Co., has grown by expanding its own business and by acquiring other banks. It recently bought Benjamin Franklin Bancorp. and Slade’s Ferry Bancorp.

“We feel like we have a unique opportunity to take advantage of the turmoil in the market,’’ said chief executive Christopher Oddleifson.

Still, some of the state’s biggest banks have been hit hard by troubled investments such as subprime mortgages and commercial loans.

Bank of America, the biggest in Massachusetts, posted a $1 billion loss in the third quarter and received $45 billion in loans from the US government. The bank, which is shedding about 10 percent of its worldwide workforce, has already closed 11 of its 297 branches in Massachusetts.

Citizens Financial Group, the region’s second-largest bank, reported a $929 million loss last year and disclosed plans to cut 2,000 jobs nationwide. But the bank has continued to open branches in Massachusetts, including one in a Dunkin’ Donuts this month, and to hire in key areas, including 40 employees in its wealth management unit in Boston.

For two of the state’s biggest insurance companies - John Hancock Financial in Boston and Sun Life Financial in Wellesley - they have kept their employment steady, even though their profits have been squeezed by investment losses and the need to increase reserves. Meanwhile, MassMutual Financial Group, of Springfield, eliminated 500 jobs after big investment losses last year, although it is beginning to hire again.

Liberty Mutual Insurance Co. expanded its operations after the state deregulated auto insurance allowing companies to set their own rates in 2008. The Boston insurer has nearly 4,091 employees in Massachusetts, up 15 percent from the end of 2007, and plans to add 75 more in Springfield by mid-2010.

No part of the financial sector has been hit as hard as the mortgage and real estate industries, but a housing recovery may be underway, buoyed by the government’s $8,000 tax credit for first-time home buyers and by historically low mortgage rates.

“There’s always light at the end of the tunnel,’’ said George Manemanus, president of Multi State Mortgage in Groveland, who is busier these days. ’’People are always looking to buy homes and refinance.’’

Robert Gavin of the Globe Staff contributed to this report. Todd Wallack can be reached at twallack@globe.com.