NEW YORK — `RETRENCHMENT'' is once again the horror-word on Wall Street. Stock and bond analysts, retail brokers, receptionists, and other day-to-day workers at investment houses are fretting about the adverse impact of recession - including more layoffs. Since the stock market downturn in October 1987, thousands of employees in the investment community have lost their jobs. A number of smaller brokerage firms have gone out of business. So has one very large company, Drexel Burnham Lambert Inc., which was closely linked to the sagging junk bond market.
Unfortunately, an economic downturn at this time is expected to lead to not only more belt-tightening here, but possible takeovers and mergers involving some investment houses.
Rosemary Scanlon, chief economist for the Port Authority of New York and New Jersey, says she is not surprised that the current downturn would have a sharp impact on the financial community. This particular downturn, she believes, is primarily ``a financial-led downturn,'' compared to, for example, ``the energy-linked recessions'' of the 1970s. In other words, she says, the economic momentum of this downturn is related to interest rates and the savings and loan debacle, and has had a quick adverse impact on the construction and housing sectors. In such a climate, with credit tight, investing seems particularly risky.
Still, Ms. Scanlon is not a doomsayer. She expects further ``whittling down,'' in terms of additional layoffs. But she also figures that brokerage houses may come up with creative new financial instruments to lure back investors from more conservative investments; that happened in the 1970s and 1980s, she says, when investment houses began promoting mortgage-backed securities. Ms. Scanlon says one attractive winner during the period ahead may be municipal bonds, given an expected steady level of public-sector investing.
The investment community is ``hurting'' right now, says David Strongin, who is director of the international division of the Securities Industry Association (SIA). But Mr. Strongin says that whatever the ``interim losses'' for Wall Street, economic growth in Europe, stemming in large part from economic integration there in 1992, should stimulate underwriting and trading.
At present, signs of new retrenchment are numerous. For example, Prudential-Bache Securities Inc. recently announced that it was leaving investment banking and will instead focus on its extensive retail business. Pru-Bache said it would lay off 120 of its 180 investment bankers. Some analysts believe that unless the house becomes more profitable, it could be sold by its parent, Prudential Insurance Company of America.
Other firms that have reduced employees, or are reportedly contemplating layoffs, include Merrill Lynch & Co. Inc., Shearson Lehman Brothers Inc., Morgan Stanley Group Inc., and CS First Boston Inc. The investment-brokerage side of Wall Street now employs around 215,000 people, according to the SIA. That's down from a high of slightly above 250,000 employs just before the 1987 market crash, but still well above early 1980s levels.
The current difficulty stems from a sharp drop in both retail brokerage and stock and bond underwriting, Ms. Scanlon notes. Corporate mergers and acquisitions - a mainstay of the booming 1980s - are also way down, she says.
The downsizing on Wall Street comes against the backdrop of two secondary occurences: the rising clout of regional stock and commodities exchanges in such cities as Philadelphia, Chicago, and Cincinnati and continuing technological innovations (such as global electronics links). Both trends work against employment growth in New York.
The news here is not entirely grim. Last week the four commodity exchanges located in the Big Apple rejected a lucrative financial offer from New Jersey to relocate across the Hudson. Instead, the four exchanges accepted an incentives package worth about $145 million to remain in Manhattan. The four exchanges employ some 12,000 people.