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Special Report-Wall St. layoffs to slice Big Apple's economy

June 28, 2001

By Joan Gralla

NEW YORK, (Reuters) - Wall Street is hurting and the stock slump is likely to trigger thousands more lay-offs, slamming the economy and budget of the world's financial capital.

The Big Apple's fortunes are intertwined with the securities industry. Wall Street, which contributes more than a fifth of the city's business tax revenues, last year earned a record $21 billion and dished out $15 billion in bonuses.

New York City benefited handsomely, taxing both the securities industry's high rollers and the firms' profits. Plus, each job on Wall Street helped create another two in services, according to the U.S. Commerce Department.

So far, there are mixed signs that the city economy's luster is fading. Employment growth has slowed and Tiffany & Co.'s New York store saw sales drop 15 percent in the first quarter as its $75,000-a-year customers bought less expensive items.

On the other hand, apartment prices continue to firm, and famed jeweler Harry Winston, whose typical client earns $500,000 or more, says sales could match last year's record, which was driven by millennium fever.

But anxiety is running fairly high among investment bankers on Wall Street because the equity market's retreat has largely iced two of Wall Street's biggest money-makers: mergers and acquisitions and initial public offerings.

New York City's banks and brokerages might cut as many as 30,000 people more, or one-sixth of Wall Street's work force, said Paul Bernard, who heads an outplacement firm that bears his name. This includes 2,000 members of what Bernard calls the ''seven-figure club'' -- investment bankers who earn $1 million or more in a year.

``There's been a glut of investment bankers for quite some time now ... The dot-com boom masked this problem at Wall Street firms ... (and) like dot-coms, the Wall Street firms expanded without having any strategy,'' Bernard said.

Other securities experts who spoke to Reuters were less gloomy, but agreed that many research analysts, sales people, and traders will suffer from the pronounced shift this year in what's hot on Wall Street.

``I think the layoffs are going to come in selective areas and not in every firm,'' said Robin Judson, a managing director at Smith Hanley Associates, a New York City-based outplacement firm. Companies likely will try to reassign experienced people, she added.

``They remember what happened in the past when they had a tendency to overfire,'' she said, adding those firms had trouble attracting talent when markets rebounded.

STOCKS OUT, BONDS IN

These days stocks are cold. Safe havens like bonds and energy or specialties like restructuring, private placement, insurance, and European banking are hot. The likelihood of more job cuts is tied to the stock market's performance.

``You will continue to see layoffs until the underlying financial markets start to pick up and the IPO pipeline and the M&A pipeline fill up,'' said Mike Franzino, a partner with recruiter Heidrick & Struggles International.

The value of IPOs plunged 59 percent to $12 billion in the second quarter from a year ago, according to Thomson Financial Securities Data. Mergers and acquisitions slid 40 percent to $274.6 billion.

Battered by weak stock markets, Merrill Lynch & Co. warned this week its earnings would be as much as 37 percent lower than expected. The No. 1 U.S. brokerage has cut 3,300 jobs so far this year, trimming its workforce to 68,700. And it has not ruled out more cuts.

A few rivals have weathered the storm better, partly because of their nimbleness in bond trading.

Lehman Bros. Holding Inc. saw its profits rise 14 percent as strong bond trading results offset weakness in its stock business. The bond unit at Bear Stearns Cos. Inc. also turned in a solid performance, with fixed-income net revenues rising 181 percent to $514 million.

Still, Bear Stearns sliced expenses, cutting its staff to 10,850 from 11,200 at the end of November 2000. The firm also cautioned more cuts might lie ahead.

In May, New York City's securities industry lost 1,400 jobs when the data were looked at on a seasonal basis, according to City Comptroller Alan Hevesi. That was the security industry's first big decline this year, but it was topped by the 2,600 business services job cuts, a sector that includes dot-coms.

Lay-offs go hand in hand with pay cuts -- except for the rainmakers.

The average Wall Streeter, who earned $195,533 in 1999, according to the Securities Industry Association, should not expect this year's bonuses to go up. Some banks may cut compensation as much as 30 percent below last year, said Rolfe Kopelan of Foster McKay International, who believed layoff fears might be exaggerated.

``(But) the banks want to manage the expectations of their bankers by saying ... those bankers that are bringing in revenue right now are not going to have their compensation reduced this year,'' he added.

BIG APPLE STILL GOT JUICE

So far, New York City, like much of the Northeast, has enjoyed a more resilient economy than other parts of the nation, such as the midwest and southeast -- partly because many manufacturers pulled up stakes decades ago.

The service sector underpinning parts of the Northeast -- such as New York City and Boston -- has helped keep the region's economy from cooling as fast as the rest of nation.

When it comes to taxes, brokerages and banks pay New York City the highest amount by far of any industry. Those payments totaled almost $2.75 billion in 1998 -- about 22 percent of all the taxes the city received from all its industry sectors.

New York City's economy has been cushioned by another feature unique to it: banks and brokerages typically did not hand out bonus checks until late 2000 or early 2001.

``The employees in the securities industry right now are still enjoying the large bonuses they just received a few months ago,'' said an official with the New York State Financial Control Board, which oversees the city's finances. ``That's keeping things fairly strong here. It's also probably holding up the real estate market better than it otherwise would be,'' said the official, who declined to be named.

One of New York City's real estate brokers said a survey of its data base showed apartment sales fell 12 percent during the first quarter. However, Susan Renfrew, an executive vice president at Douglas Elliman, added the average sales price for an apartment climbed 19 percent to $876,612 in that time.

PKF Consulting, a San Francisco-based firm, said the national economic slowdown hasn't kept tourists away though business folks are shortening their stays. That's why the city's hotel occupancy rate during the first four months of this year fell to 74.5 percent from 81.9 percent a year ago, the group said. ^

http://www.individual.com/story.shtml?story=d0628112.301

-- Martin Thompson (mthom1927@aol.com), June 28, 2001