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Wall Street Layoffs Bode Badly for Funds


The dark clouds are looming, but the extent of the storm is yet to be determined for two of the world's top investment firms, Merrill Lynch and JPMorgan Chase, both of New York.

Both companies are mulling layoffs that could lead to several thousand employees at each company being ushered out the door. While layoffs have not been confirmed at Merrill, the company is expected to cut up to 2,000 jobs, or about 4%, from its workforce of 50,000. Merrill has already jettisoned 15,000 workers in the past year.

Reports on the reductions at JPMorgan, the second largest U.S. bank, have ranged from 3,000 to 4,000. Morgan has already dumped 10,000 employees since its merger with Chase in 2000.

"These companies are sensitive to market-related activities, and if the business isn't there and doesn't pick up, you are left with little choice but to cut heads to maintain the profit margins," said Craig Woker, financial services analyst at Morningstar of Chicago.

"Presumably, we are at or near the bottom of a market cycle - at least I'm assuming so - and you would see some pickup going forward. How quick we'll see a market recover, that's anybody's guess," Woker said.

Like most leading mutual fund, brokerage and investment-banking firms, Merrill and Morgan have been hit hard by a stagnation in assets, a drop-off in mergers and a lack of underwriting.

"While we may reduce head count in some areas, we are selectively hiring in

others," Merrill said in a statement.

However, Merrill announced additional cost-cutting measures on Tuesday, when it said it will consolidate its Nasdaq trading operations with its New York headquarters and operate as one broker/dealer.

As for Morgan, it is a somewhat different story. In September, the company warned it would not meet its earnings estimates for the third quarter and that it would cut its head count. "As we announced in our earnings pre-announcement call, we [said we] will have a downsizing," said Adam Castellani, a spokesman for the firm. "There is no set number and it is not an across-the-board cut."

Logically, it is expected the company will address the layoffs this Wednesday, in its third-quarter earnings call. Also, it is expected that the company will cut from areas that are lagging, and divisions dealing heavily in equities would appear most vulnerable.

Bigger Heads Could Roll

"It is not unlikely that companies will start looking more closely at management instead of just staff positions," said Charles O'Neill, president of executive recruitment firm Diversified Management Resources of Boston. "Most of the larger firms have already eliminated or cut positions" among support staff, or workers who've become unproductive due to the market slowdown, he said.

O'Neill pointed out that Schwab cut back staff in transaction-related areas. "Few calls, few trades. Fewer people required to support them.

Elsewhere, Credit Suisse First Boston, the investment-banking arm of Credit Suisse Group, is getting into the layoff mix, as it is preparing to cut around 1,500 jobs, or approximately 6% of its workforce, according to published reports. CSFB has dumped 4,800 workers so far this year, nearly 16% of its staff.

It is expected that financial-services companies and banks are bracing for another round of layoffs, as many are continuing to struggle to try and align costs with slipping revenue.

Fido Managers Reprieve

Two weeks ago, Fidelity of Boston announced that it was chopping its staff by 1,695 employees, or more than 5% of its workforce, although none of its fund managers or fund analysts took the fall, according to the company [see MFMN 10/7/02]. State Street Corp. of Boston cut workers recently, paring 75 staff members from its marketing, legal and facilities departments. Charles Schwab of San Francisco also announced cutbacks, among 1,880 workers, or 10% of its staff. [see MFMN 9/23/02]

And those are just some of the most recent examples. Janus severed nearly half its staff last year and recently told of possible further cutbacks. New York-based Deutsche Asset Management, and Putnam Investments and FleetBoston Financial, both of Boston, have also employed cost- cutting measures involving staff reductions.

"For a long time, many firms, particularly like Goldman Sachs, were very reluctant to chop heads because initially it was presumed that this market downturn would be very minimal," Woker said.

"It's turned into much worse than that, with the strong likelihood that major market indexes will be down for the third straight year. And you've got to go back about 50 years to even see something on par with that happening. Volume is horrid. The NYSE is about flat, and Nasdaq has fallen 30% to 40% per year. When you're driving a large portion of your business off of commissions, it's very difficult to maintain the margins and justify having as many brokers and financial advisers on your staff, Woker said.