British Bank Halts Securities Trading, Cuts Staff
Leading British investment bank Morgan Grenfell closed most of its stock market and bond trading operations Tuesday and laid off 450 people in what analysts said could herald a string of withdrawals from securities trading in London.
It said in a statement it would stop making markets immediately in stocks, British government bonds or “gilts,” convertible securities and options.
The announcement boosted Morgan Grenfell shares but sent shock waves through London’s securities market and sparked fears of further large-scale job losses.
The sackings affected about a quarter of the 150-year-old merchant bank’s British work force and represented one of the biggest layoffs in London’s financial district, known as the City, where about 12,000 jobs have been shed since the Oct. 19, 1987, global stock market plunge.
“This is big, big news. It could just be the beginning,” one broker said.
‘Shellshocked’
Distraught Morgan Grenfell staff members brushed past reporters as they left the bank’s offices but one paused to describe himself as “shellshocked.” Some of those dismissed reportedly earned up to $372,000 a year on top of perks that included luxury West German sports cars.
Morgan Grenfell said it lost about $33.5 million (18 million pounds) in the 11 months ending Nov. 30, including $8 million in gilt trading alone. It was pulling out of market making because it did not foresee current low trading volumes increasing enough for it to make a profit.
Analysts said Morgan Grenfell had managed to capture only 3% to 4% of the gilts and equities market despite an intensive drive to achieve a viable share.
Morgan Grenfell said the layoffs would cost about $18.5 million. The bank, which in a recent Financial Times survey stood second in London takeover activity, said it would concentrate now on its banking activities, corporate finance and managing assets.
A shakeout in the market has been predicted since the “big bang” expansion of the London Stock Exchange in 1986, which admitted banks and foreigners to trade in securities and led to an explosion in recruitment of young dealers and analysts. The presence of too many market makers led to a dealing war in the form of narrower price spreads. Profit margins have been shaved as trading volumes have run at about half the level seen during the feverish bull market before the 1987 crash.
“Losses in the gilt market alone are probably running about 100 million pounds ($186 million) for the year,” said Mark Rorison, a banking analyst for Prudential-Bache Securities Inc. “I would have thought further withdrawals are inevitable.”
Share Prices in Doldrums
Six firms have pulled out of being primary market makers in gilts since 1986, leaving 24 in the field. Morgan Grenfell is the first big firm in the City to shut down completely its main market-making operations in what is seen as a drive to bring the City’s manpower into line with reduced business.
London share prices have remained in the doldrums and the volume of business has been effectively cut in half since the middle of last year as investors shunned the stock market and returned in droves to the safety of savings banks.
“We had a period of relative calm after the big bang. Now we are in the real situation with almost normal volume levels . . . It will be the early 1990s before the City is reshaped,” Bob Cowell, the managing director of Hoare Govett Securities said.
A recent study commissioned by the City and the London Stock Exchange said there could be 1,500 more jobs lost in the securities industry in coming months.
Morgan Grenfell advised Guinness PLC in the brewing giant’s takeover in 1986 of Scotch whiskey-making firm Distillers Co. PLC. Aspects of that deal resulted in several investigations at Guinness. Morgan Grenfell Deputy Chairman Christopher Reeves resigned after breaches of procedures and policies were identified.
