L.A. Brokers May Start Getting the Ax
The broom is about to sweep through many Southland brokerages, as Wall Street again cuts staff to deal with its continuing business slump.
To many corporate treasurers, money managers and individual investors, the latest purge of brokers and investment bankers may just seem like more comeuppance for an industry that enjoyed an orgy of riches in the 1980s.
But the new round of layoffs may hurt more than those getting the pink slips. The financial services industry’s deep retrenchment is threatening to create a vicious circle that will make it even tougher for many companies to find financing, more difficult for investors to trade stocks and less likely that the investment business will ever return to a sense of normalcy.
“Up to now, the industry has cut fat,” says Frank Baxter, president of brokerage Jefferies & Co. in Los Angeles. “Now, they’re starting to cut into the muscle.”
In the latest Wall Street purge:
* Prudential-Bache Securities will slash its nationwide investment banking staff of 180 by about two-thirds. The Los Angeles staff of about eight investment bankers apparently will be reduced, but a spokeswoman in New York insisted that Pru-Bache “will continue to have an active investment banking presence in Los Angeles.” However, sources say the firm’s San Francisco investment banking office will be closed.
* Merrill Lynch this week cut 50 investment bankers nationwide, including several in West Coast offices, a spokeswoman said. Since the beginning of the year, Merrill has cut its banking staff by 18%, to 575 now from 700.
* First Boston, which trimmed its Los Angeles staff earlier this year, may soon lose more people here as the firm begins a new round of cutbacks across the board. Some rival investment bankers believe that First Boston may ultimately pull out of Los Angeles. The firm won’t discuss its plans.
Meanwhile, an unknown number of Southland brokers are leaving the business one by one as clients continue to hibernate from the depressing bear market. “The guys we’re losing are the younger ones who have been in the business two or three years,” says Bob Juneman, senior vice president at Dean Witter Reynolds in Los Angeles. “They’re finding it very difficult to get enough people on the books to make a living.”
What’s significant about the latest cuts is that they follow already severe brokerage staff reductions that have taken place since the 1987 stock market crash. Nationwide, securities industry jobs have plunged 19% since 1987, to 210,000 from 260,000.
Yet brokers’ business has fallen even faster, as investors have continued to flee the stock market and as corporate merger activity has dried up with the slumping economy. Wall Street’s desperation to cut investment bankers--the people who advise companies on takeovers, stock offerings and other finance needs--suggests that brokerage chiefs see no recovery in the economy soon.
Of course, if there’s no business for those former hot-shot investment bankers, it makes sense for them to find something else to do. But the downside for Southland companies is that Wall Street’s bloodletting is further aggravating the longer-term problem of shrinking liquidity--the availability of money.
For example, area companies will have fewer financing options if more investment banking firms pull out of the market. Likewise, the loss of more stock traders and brokers can make it tougher for investors to buy or sell stocks. That, in turn, feeds on itself: As big investors in particular find it more difficult to trade stocks, they trade less. That cuts brokerage revenue further, which forces the brokerages to launch new cutbacks. On it goes.
Tom Akin, managing director at Merrill Lynch in Los Angeles, says his institutional trading department has already been cut 15% to 20% over the past two years, to about 60 people currently. To cut more would damage the department’s long-term prospects, he says. “We’re at the point now where you either rethink your entire business strategy or you hold,” Akin says.
Meanwhile, corporate and individual clients alike also may begin to suffer simply because brokers and investment bankers are under such extreme mental pressure--the ultimate threat of being out of work at any moment. “Fear and paralysis have reduced the intensity of service,” says Jefferies’ Baxter.
Yet some major Southland companies say that, so far, they feel more pampered than ever by Wall Street brokerages. The shrinking market is leading many firms to pound on every door. “They’ve been very aggressive for our business,” says Bruce Jaffe, executive vice president at electronics distributor Bell Industries in Los Angeles.
Mattel Inc. Chief Financial Officer Jim Eskridge says “they (brokerages) are all coming in and giving us proposals. Every one of them has a toy company they think we should buy.”
Indeed, if there’s any benefit in Wall Street’s shrinkage, it’s that the people left should be the best at service, ideas and stamina.
The question is whether that much smaller field will be interested only in big companies such as Mattel. If so, smaller Southland companies could find it more difficult to get the financial help they’ll need down the road.
But Lloyd Greif, corporate finance chief at brokerage Sutro & Co. in Los Angeles, believes that regional firms such as his can fill the needs of smaller firms. In fact, he argues that the cutbacks at major brokerages will help smaller area businesses rediscover regional brokerages’ financial capabilities.
As long as the economy keeps eroding and the stock market keeps falling, however, the outlook for every brokerage remains troubled at best. Don’t count on the latest firings to be the last. Says one L.A. brokerage chief: “I would expect there are going to be a lot more bodies floating face down in the pond between now and February.”
Briefly: Another sign of the times on Wall Street: Stockbrokers just entering the business--however few there may be in the current market--will be getting a special “ethics brochure” mailed to their homes from the National Assn. of Securities Dealers. The brochure stresses “the need for professionalism and fair dealing with investors,” especially in periods such as this one, NASD says. . . .
The disclosure Wednesday that San Diego real estate investor M. Larry Lawrence has taken a 2% stake in Caesars World doesn’t answer the big question: Who was buying in early October? That’s when a flurry of activity sent the stock up 25% to $13.625 a share. Alan Aiello, Lawrence’s investment manager, says he wasn’t buying then. Caesars continues to move higher on takeover speculation, up 50 cents to $15.625 on Thursday.
