Ax Is Falling Again on Wall Street Jobs, but This Time With More Aim
Rocked by global financial markets’ extraordinary chaos of recent months, Wall Street is taking the knife to its payrolls.
The litany of recent layoff announcements by major brokerages, banks and other players has raised memories of the blood bath that followed the 1987 stock market crash--a four-year retrenchment by the securities industry that saw more than 30,000 jobs evaporate in New York alone.
This time, however, the toll isn’t expected to be nearly as severe. Although the rebound in U.S. stock prices since early October has helped the industry’s outlook, Wall Street’s saving grace may be that, like most U.S. industries, it has been much shrewder about its hiring and firing practices for most of the 1990s.
In any case, how the industry handles this challenge matters to Americans because, love it or loathe it, Wall Street raises much of the capital that keeps the economy running.
And like Silicon Valley in high tech or Hollywood in entertainment, the financial sector has developed the investment and trading innovations that have kept U.S. markets in the forefront globally.
To keep that competitive edge, it’s important that the industry not botch the surgery it is now attempting, experts say.
So far, brokerages have responded to market-related losses not by slashing jobs across the board, but by targeting their cuts.
“The reductions are highly strategic,” said Rae Rosen, regional economist at the Federal Reserve Bank of New York.
Giant Merrill Lynch, for example, faced with its first money-losing quarter since 1989, announced last month that it would cut 3,400 jobs worldwide, thinning its 65,000-person global work force by 5%.
But even as it reduces the staffs in its emerging-market, bond-trading and “derivative” securities operations, Merrill has held steady on staffing in its retail-investor business--including in Japan, where earlier this year it hired 2,000 former employees of failed Yamaichi Securities.
Although Merrill will have fewer employees at year-end than it does now, it still will have about 5,000 more people than at the end of 1997, a spokesman said.
Still, industrywide this is already the biggest round of job cuts on Wall Street since 1994, when soaring interest rates sent markets reeling.
Other major firms besides Merrill that have announced cuts: BancBoston Robertson Stephens; Bear Stearns; Bankers Trust; CIBC Oppenheimer; Donaldson, Lufkin & Jenrette; Prudential; Salomon Smith Barney; and Warburg Dillon Read.
Most firms, like Merrill, have so far trimmed jobs in more exotic, higher-risk businesses such as bond trading and foreign stocks, as well as on the investment banking side as corporate merger deals have waned. Also like Merrill, most brokerages are sparing their retail-investor operations.
That may be unsurprising, given the competition for the long-term savings of aging baby boomers. Whatever their losses in Asian markets or on hedge fund bets gone awry, major full-service brokerages can ill afford to downsize their retail operations while the likes of Charles Schwab, Fidelity Investments and E-Trade are adding jobs and going after their customers.
Overall, the brokerage industry doesn’t appear to be in crisis mode.
At the Securities Industry Assn.’s annual meeting in Boca Raton, Fla., last week, there were as many complaints about the incessant rain as about the employment picture, said George Monahan, SIA vice president and acting director of research.
In particular, “the regional firms aren’t crying,” Monahan said, noting that the bulk of the job losses are occurring abroad and at the big multinational firms--most of which are headquartered in Manhattan.
New York City, which commands 25% of the industry’s U.S. work force but an outsize 40% of its total payroll, is suffering the most, just as it reaps the biggest rewards when the market booms.
‘It’s Definitely Not Over Yet’
The recent ouster of high-profile executives such as Citigroup President Jamie Dimon and Merrill’s risk-management chief, Daniel T. Napoli, were strong signals that the third-quarter losses at major firms would not be shrugged off.
Certainly, the investors who own the stocks didn’t ignore the red ink: From their July record highs to their recent lows, shares of Lehman Bros., Merrill and Morgan Stanley Dean Witter--to name just three--plunged 71%, 65% and 60%, respectively.
“It’s definitely not over yet,” one Wall Streeter in the emerging-markets business said of job cuts. “The atmosphere at a lot of firms is very gloomy. The shareholders are definitely interested in seeing something happen right now.”
Annual bonuses, which for many investment bankers and traders are the biggest component of their pay, will be far leaner this year--down 20% to 30%, according to industry analyst Dean Eberling of Putnam, Lovell, de Guardiola & Thornton.
In New York, stories abound of hard times already underway for luxury-goods merchants, pricey restaurants, sellers of high-end apartments and others who cater to Wall Street’s big money earners.
Of course, as with the stock market itself, employment on Wall Street has traditionally been a boom-and-bust affair. Before this year’s market slump, the last official bear market in stocks was in the summer and fall of 1990--a fairly short-lived affair, at least from investors’ perspective.
But for securities industry professionals in New York, the bear market in employment started with the October 1987 market crash and stretched through 1992. Over that period, the number of securities jobs in New York plunged 21%, to 128,000 from 162,000--a severe blow to the local economy.
This time around, Fed economist Rosen believes the impact will be more muted. She is predicting that the downturn will strip six-tenths of a percentage point off the city’s economic growth next year but that New York will still grow at a 1.6% annual rate.
The industry’s Wall Street base is better prepared to withstand a rough period in the markets now because it has expanded more slowly during this bull market, Rosen and other experts said.
Even though stock prices and trading volume repeatedly reached new highs during the seven-year bull run that began in late 1990, it wasn’t until this summer that brokerage employment in New York finally regained the 162,000 peak it had hit in 1987, according to the state’s Bureau of Labor Statistics.
Employment now stands at about 165,000, although the latest numbers don’t yet reflect the recent round of job cuts.
For Wall Street, the more deliberate rebuilding of employment--and the targeted cuts made so far--reflect some of the lessons learned elsewhere in corporate America during the downsizings of the 1980s and early ‘90s.
For one, the consolidation wave that merged Morgan Stanley with Dean Witter, Salomon Bros. with Smith Barney, and numerous regional firms with foreign brokerage concerns or U.S. commercial banks in recent years has already squeezed out much of the full-service brokerage industry’s fat, analysts say.
What’s more, many firms have learned that indiscriminate firings not only shattered morale, but also didn’t lower costs as efficiently as more surgical cuts would have, according to Larry Hunter, a labor economist at the University of Pennsylvania’s Wharton School.
Meanwhile, on a national level, securities industry employment shrank by 8% after the 1987 crash, but the tough market of 1994 barely registered. Although major investment banks cut jobs in 1995 after the turmoil of 1994, employment continued to boom at regional brokerages and discount firms, as the ranks of individual investors seeking investment services continued to expand.
Indeed, that trend has seen discount brokers and mutual fund firms such as Schwab and Fidelity opening street-front offices around the country, hoping to connect with moneyed baby boomers where they live. That has bolstered overall securities industry employment in the 1990s even as the traditional full-service firms have expanded much more slowly.
For the U.S. economy overall, experts say there is less to fear from the securities industry’s so-far modest job cuts than from the brokerages’--and institutional investors’--unprecedented turn away from risk-taking in markets from August through early October.
Federal Reserve Board Chairman Alan Greenspan sounded that theme again last week in an address to the Securities Industry Assn., when he noted how the Russian bond default of mid-August caused a virtual deep freeze in the riskier segments of the bond market: Investment bankers stopped underwriting and investors stopped buying.
On the equities side, the market for initial public stock offerings also dried up, forcing many young companies to cut back expansion plans.
Greenspan has said he could not recall a previous period when investors became so unwilling nearly overnight to take risks in markets.
What Could Change the Outlook
The Fed’s two interest rate cuts since Sept. 29 have helped ease investors’ nerves, and higher-risk stocks and bonds are again attracting some buyers. The U.S. stock market and most foreign markets have rebounded in recent weeks.
Still, should the brokerages themselves, along with their customers, begin again to balk at holding all but the safest securities--perhaps because of fears of a deep global recession--Wall Street’s downturn will become much more severe and job losses will inevitably mount, Eberling said.
Noting that this has actually been a profitable year for most of the securities industry, Eberling said, “Looking back on this year historically, someone might say, ‘Gee, 1998 was a pretty good year.’ ”
But reflecting on the trading losses incurred by major brokerages in recent months, and on the level of fear in the market at the panic’s zenith, he said, “It’s like the first half was a great year--and the second half has been a bad decade.”
Thomas S. Mulligan can be reached by e-mail at thomas.mulligan@latimes.com.
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Bull Market Beneficiaries
Employment in the U.S. securities industry has risen 173% since 1980 amid the long bull market, but the pace of growth has been slower in this decade than last, as many securities firms have become shrewder about staffing. That may limit job losses in the wake of markets’ recent turmoil. Total securities industry employment, year-end and lates, in thousands:
1998: 658,000*
*As of Sept. 30
Source: U.S. Bureau of Labor Statistics
