Chase Plans Restructuring to Cut Costs $300 Million

Chase Manhattan Corp., the nation’s second-largest bank company, which is suffering from low earnings, said Monday that it would undertake a restructuring aimed at cutting costs by $300 million.

“It is imperative that our overall performance improve in the months ahead. This is a dual challenge,” the company said in a memorandum to top employees.

The memo said the restructuring aims to reduce costs in the near term while boosting revenue.

Analysts said the plan was pushed by chairman-designate Thomas Labrecque, 51, named last week as the successor to Chairman Willard C. Butcher.

They said Chase wanted to cut 2,500 to 3,000 jobs through layoffs and attrition in the restructuring.

Chase said the move was in response to a business climate “as difficult as any in the history of the global financial services industry.” But it gave few specifics about where the cost cutting might hit.

Analysts said the reorganization will likely result in a big one-time charge against earnings.

“Personally, I wouldn’t be surprised if you saw (a charge) in the area of $100 million, principally from severance. It’s very expensive reducing staff under foreign labor laws,” said Stephen Berman at County Natwest.

Speculation mounted that Chase would launch its much-needed cost-cutting plan when Labrecque’s elevation was announced.

The plan is expected to include asset sales and a dramatic slimming of the company’s diversified investment banking services, ranging from corporate finance to foreign exchange and government bond dealing operations.

Chase reported disappointing first-quarter earnings of $44 million, down 67% from a year earlier, and increases in nonperforming loans, those on which interest payments are late.

Earnings have not been sufficient to even pay for the company’s annual dividend. While profits in recent years have hit some peaks, for the most part they have been disappointing. Chase last year reported a $655-million loss because of costs associated with poorly performing loans and restructuring charges.

Chase, which has 42,000 employees, has already cut about 5,000 jobs since 1987, when large losses from reserving for Third World loan losses accelerated the need to pare costs.

Now, with revenue from lucrative leveraged buyouts, merger and acquisition advising and real estate lending drying up, and with mounting losses from souring real estate loans, Chase is under the gun to make more cuts.

Chase is not alone in seeking ways to trim expenses.

Bankers Trust New York Corp. just pared its corporate finance department by 75 people, or by 10%, and analysts expect job reductions at other U.S. banks as well.