Kidder Peabody Plans to Lay Off 1,000 Employees : Will Merge Some Offices, Reduce Year-End Bonuses to Save $100 Million a Year
Kidder, Peabody & Co., a prestigious Wall Street firm hurt by the insider trading scandal, said Friday that it will lay off 1,000 people and cut expenses by 20% to save $100 million annually.
The announcement marked the latest move by a major brokerage to restructure, consolidate and reduce costs since the October market collapse. It came on the same day that the president of Prudential-Bache Securities said his firm would slow its expansion and one day after E. F. Hutton Group agreed to merge with Shearson Lehman Bros., a move expected to result in as many as 5,000 layoffs.
Kidder stated that, in addition to cutting staff, it plans to reduce year-end bonuses by 20%, merge about 10% of the firm’s regional offices with larger branches and take other steps to streamline and emphasize its historic strengths in investment banking.
In addition, Kidder said it expected to cut commissions paid to sales representatives as much as 7% as a result of reviewing commission rates within all areas of the firm.
“Quite simply, our goal is to structure and implement a better way of doing our businesses,” Chief Executive Silas S. Cathcart said in the firm’s statement.
Cathcart said the plan “was based on a thorough strategic review of both the changing environment for investment banking and of Kidder Peabody’s strengths and the requirements of its client base.”
Specifics Undetermined
The statement did not specify when the layoffs would start or who would be affected, but it said the reduction would bring the total staff back to early 1986 levels, when the firm employed about 6,300.
“Altogether, the various cost-reduction programs will result in annual savings of about $100 million,” the statement said.
A Kidder spokeswoman said “specifics have not been determined yet” concerning how many California employees will be affected by the cuts. Eight of the firm’s 65 U.S. branches are in California, she said, while about half of its 7,500 employees are in New York.
Barclay Perry, manager of Kidder’s Los Angeles office, which employs about 200, said he does not expect the layoffs will have a material effect on the firm’s Southern California employment. Most of the cuts will be in New York, he said.
Earlier Cutbacks
Kidder spokesman Robert Marquis said the plan had been under consideration for several months and that the timing was not directly related to the October stock crash. He said it was unclear when the layoffs will commence.
“This is a long-term plan. It was begun before October and it makes sense pre and post,” he said. But he also said that “to the extent the stock crash changed the nature of the business, that, of course, affects your response.”
Even before the crash, major Wall Street firms were moving to retrench because of a slowdown in the securities business following five years of explosive growth.
In early October, Salomon Bros. disbanded its large municipal bond business, laying off 800 people; L. F. Rothschild Holdings reduced its municipal bond business and laid off 150, and Shearson laid off 150 in its London office. Other firms such as Drexel Burnham Lambert and First Boston Corp. have announced intensive cost-cutting reviews.
In another such move, Prudential-Bache, which last year began an ambitious $140-million, three-year plan to beef up its investment banking unit, said Friday that it had slowed the pace of its expansion.
“We have slowed down because we had a digestion problem and were getting too many people in our organization,” Prudential-Bache President James Barton said in an interview at an industry convention in Boca Raton, Fla.
But Barton stressed that the company was not laying off any of its investment banking staff. “We may be delayed, (but) we are not firing and are not on a rampage to cut by 30% and throw bodies out the window,” he said.
Once the oldest privately held firm on Wall Street, Kidder sold an 80% stake in itself to General Electric Co. in April, 1986, a move that substantially boosted Kidder’s capital base and enabled it to compete more effectively with larger rivals.
But Kidder later became enmeshed in a major scandal involving Ivan F. Boesky, a speculator who paid a record $100-million penalty to the Securities and Exchange Commission last year to settle charges of insider trading, the misuse of confidential information to profit in securities deals.
Boesky’s cooperation implicated ex-Kidder executive Martin A. Siegel, who also is cooperating with the government, and led to a broad investigation of Kidder itself.
As a result of that probe, Kidder settled civil charges of insider trading without admitting or denying guilt by paying a $25.3-million fine earlier this year, the largest amount ever surrendered to the SEC by a securities firm.
The scandal deeply embarrassed GE, which moved aggressively to revamp Kidder’s management and promised deeper changes within the firm. The restructuring announced Friday is a partial outgrowth of that pledge.
Founded in 1865, Kidder has grown into the nation’s 14th-largest securities firm, with a capital base of more than $595 million. It serves about 440,000 customer accounts.
