Shearson to Trim Stockbroker Commissions : Wall Street: The company’s first such cutback in 15 years is another sign of an industrywide slowdown.

Shearson Lehman Hutton Inc. said Monday that it will cut stockbroker commissions for the first time in 15 years, reflecting an industrywide slowdown in brokerage activity by individual investors.

Shearson, the nation’s second-largest retail brokerage, said the portion of the commission that a broker gets for selling investment products will be trimmed by one to two percentage points in 1990.

Analysts said the reduction is the first direct commission cutback by a brokerage house on Wall Street in recent years, where profits have lagged partly because of an exodus of individual investors since the October, 1987, stock market crash.

In the past year, other firms have imposed a variety of customer fees that go directly to the brokerage but do not affect the size of brokers’ commissions.

Such a policy results in “a slightly higher take for the company than it does for the representative, but it’s not as brutal as this,” said James P. Hanbury, a securities industry analyst with Wertheim Schroeder Inc.

“You’re trying to raise the revenue to the firm because the overall business is not that robust,” he said. “Either the business gets better or you’re going to see” other firms cutting commissions.

Shearson, which is 61% owned by American Express Co., has been contemplating trimming the commission that a broker gets--known as the payout rate--by four to five percentage points over the next four to five years, said Shearson spokesman Michael O’Neill.

Shearson retail brokers brought in commissions averaging $228,000 this year. Shearson paid 46.5% of the total back to brokers and their supervisors in direct payments, employee benefits and deferred payments.

In 1986, when an average Shearson retail broker brought in $265,000 in commissions, the payout rate was 43%.

Shearson also has been stung by declining profits and a low stock price. The firm earlier this month announced that it was laying off up to 800 employees and restructuring its senior management. The management changes are expected to be announced after Thanksgiving

On Monday, Shearson stock fell 37.5 cents to $16.375 in New York Stock Exchange trading.

While not slashing commissions, virtually all Wall Street firms have imposed “handling” fees on customer accounts to help enhance revenue without boosting expenses.

Earlier this month, for example, Bear, Stearns & Co. imposed a $2.50 handling charge on all individual investors’ stock and bond trades. Merrill Lynch & Co., the nation’s largest brokerage, boosted its service charge last year to $2.35 for each trade from $1.85.

The Securities Industry Assn. expects third-quarter industry pretax profits to be about half of the $1 billion in pretax profits in the second quarter.

The second-quarter profit marked a sharp jump from $200 million in the previous quarter and was attributed to increased volume and declining interest rates. The bulk of the recovery came from the 10 largest investment banks, many of which recovered from first-quarter losses.

But retail commissions accounted for just 17% of revenue in the first half of the year, unchanged from 1988 but down 25% from 1987 and 35% from 1980.

At Shearson, the reduction in the payout rate is intended to increase revenue to avoid a credit rating downgrade of its commercial paper by Moody’s Investors Service Inc.

Hardwick Simmons, a Shearson vice president and head of retail brokerage operations, told Shearson brokers at a meeting in Beverly Hills last week that reducing the payout rate would help placate Moody’s.

A lower commercial paper rating would squeeze Shearson’s profit margin on the difference between what it costs the firm to borrow money and what it earns.

Simmons said a downgrade of one notch in the commercial paper rating could cost Shearson $20 million a year in higher interest payments and a two-notch downgrade could cost double that amount. Commercial paper is a short-term corporate IOU that companies sell to raise money to run operations.

“Our payout rate is too high,” Simmons said. “The industry can’t take it.”