In Securities Industry, The Talk Is of Layoffs
WALL STREET WOES
NEW YORK — FOR thousands of workers on Wall Street, the threat of the pink slip is in the air.
The General Electric Company's decision to sell most of its scandal-tarnished investment house, Kidder, Peabody & Company to PaineWebber Group Inc., and shed hundreds of jobs in the process, is only one indicator of Wall Street's woes. As it did in the late 1980s, the investment community finds itself in financial difficulty, following several years of soaring profits.
Wall Street's current slower growth in sales and profits runs counter to most United States industries. Nationally, factories are humming, exports are up, and many unemployed workers are finding new jobs. But within the securities industry, the talk is of layoffs and the possibility of more mergers as firms scramble to maintain profit margins.
On Tuesday, Merrill Lynch & Company reported a 36 percent drop in earnings for the latest quarter, and Bear Stearns & Company said profits fell 66 percent.
``When revenues are flat or turned down, as now, that creates a very difficult competitive environment,'' says Perrin Long Jr., a Detroit-based independent analyst who has covered the financial industry for several decades.
``It is not inconceivable that upwards of 6,000 employees on Wall Street could be let go by next spring,'' he adds.
On Oct. 17, GE announced that it would sell most of its Kidder subsidiary to investment house PaineWebber in a stock transaction valued at around $670 million.
The deal follows allegations earlier this year that a Kidder bond trader, either acting alone or in concert with others, engaged in bogus trades that made the investment firm look more profitable than it was.
``The fact that GE made no effort to get Kidder's balance sheet in better shape before Kidder was sold, thus boosting the potential sales value of Kidder, showed that [GE chairman] Jack Welch was saying, `Let's get rid of this thing,' '' Mr. Long says. ``The big question now is how well PaineWebber will be able to absorb Kidder's staff and operations.''
Perhaps as many as one-half of Kidder's 4,500 employees could be laid off, analysts say. But PaineWebber is expected to add Kidder's 1,100-strong retail brokerage staff. It may have to pay sizable bonuses to keep some of those brokers.
Combined with its own staff, PaineWebber would have about 6,500 brokers after the investment houses officially merge - assuming the deal is approved by the two companies' directors and federal regulators.
Once merged, PaineWebber would be the fourth-largest US brokerage house, behind Merrill Lynch, Smith Barney Inc., and Dean Witter, Discover & Co.
The PaineWebber/Kidder linkup is only the latest in a series of recent mergers and divestitures here. Last year, Sears, Roebuck and Co. sold off Dean Witter. Shearson, Lehman Brothers was sold off by American Express Company and eventually merged with Smith Barney.
Lower revenues and earnings at many investment firms reflect troubles in the bond market as interest rates gradually increased. Firms announcing layoffs in recent weeks, or expected to post layoffs, include Merrill Lynch; Nikko Securities Company; Smith Barney; Kidder, Peabody; PaineWebber; Goldman Sachs & Company; Salomon Inc.; and Prudential Securities Inc.
But not all companies are cutting back. A few larger investment firms, as well as many smaller ones that specialize in particular aspects of trading or investment banking, are adding to payrolls, says Joan Zimmerman, executive vice president of GZ Stephens Inc., an executive recruiting firm in New York.
``In one sense, this is a good moment to `cherry pick' talented people at a lower cost,'' Ms. Zimmerman says. ``Wall Street is constantly opportunistic in terms of recruiting staff.'' The Wall Street Journal said yesterday that Kidder's top broker, who generated $6 million in gross commissions last year, is joining Merrill Lynch.
Wall Street's problems are not expected to derail the Big Apple's fragile economy. ``We are expecting a number of layoffs on Wall Street, many of them in high-paying positions,'' says Amos Ilan, an economist with the Port Authority of New York and New Jersey. ``Fortunately, other sectors are starting to make job gains'' - in consulting, law, advertising, accounting, and export companies.