Pru-Bache Will Cut Investment Banking Staff : Securities: The firm abandons plans to make the money-losing unit an industry power.
Prudential-Bache Securities Inc. plans to lay off up to two-thirds of its investment banking professionals, sources said Tuesday, as the chairman of the Wall Street firm declared that “business stinks.”
The cuts at the investment bank that touts itself in ads as “rock solid, market wise” are the latest in the securities industry’s devastating recession. Altogether, the industry has lost more than 45,000 jobs since 1987.
Meanwhile, the owners of struggling CS First Boston Inc. reportedly will buy a large portion of the firm’s $1.1 billion in temporary loans to clients, made unsellable by the collapse of the junk bond market.
Prudential-Bache, a unit of Prudential Insurance Co. of America, confirmed that it was abandoning a four-year effort to become an investment banking power, drastically reducing the size and focus of the division.
Prudential-Bache did not specify the size of the cuts. But sources at the firm who spoke on condition of anonymity said that about 120 of 180 investment banking professionals would be laid off. Additionally, an undetermined number of the division’s 100 support personnel are to be axed.
Prudential-Bache Chairman George L. Ball said in a memo to employees last week that slumping business “argues for a smaller, leaner crew” that will focus on industries where the firm has succeeded in the past. He said the investment banking division lost money last year and is losing money this year.
Ball blamed the problems partly on the division’s lack of an established client base. With business down across the board, firms with longstanding clients are more likely to survive the industry’s recession.
In 1986, Prudential-Bache decided to spend more than $110 million to strengthen its investment banking force. The idea was to expand on its power as a retail brokerage catering to individual investors. But beset with industry problems of declining mergers and underwriting, as well as reduced stock trading activity, the firm lost $51 million last year.
Cuts at the firm also are expected in other divisions--including risk arbitrage, which involves speculative trading in the stocks of potential takeover targets. It is another business that has faded.
Elsewhere, a published report said the Swiss bank Credit Suisse and Metropolitan Life Insurance Co., which own CS First Boston, would purchase the firm’s troubled “bridge loans.”
The deal reportedly would free up $500 million in cash for First Boston, which financed the loans to companies and was to be repaid when the clients sold junk bonds. But the market for the high-yield bonds collapsed a year ago, leaving First Boston with the loans. The bad loans have severely hurt the firm, which lost $11 million in 1989.
CS Holding, parent of Credit Suisse, and Metropolitan Life will acquire First Boston loans to American Medical International Inc., Ohio Mattress Co. and Jerrico Inc. CS Holding owns 44.5% of CS First Boston, the Wall Street firm’s parent. Metropolitan Life owns 9.9% of CS First Boston.
They will not pick up a $257-million loan to Federated Department Stores Inc., the Campeau Corp. subsidiary now in bankruptcy court reorganization, according to a Wall Street Journal report.
