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Jack Reerink
NEW YORK, Oct 12: Wall Street investment houses are expected to report their worst quarterly results in almost four years this week, which could mean big job cuts at some of the firms.
Merrill Lynch and Co is expected to reveal how many jobs will be slashed worldwide when it reports quarterly results on Tuesday, company insiders told Reuters in London last week.
"I would suspect that every firm is evaluating its cost structure and evaluating which businesses won't return to healthy volumes in the near term, and where it will make cuts," said industry analyst Joan Solotar at Donaldson Lufkin & Jenrette.
"Firms will also be opportunistic in paring down low performers."
Aside from reported trading losses in emerging and bond markets, securities firms have seen their most profitable businesses -- underwriting stock and debt offerings, and advising companies on mergers -- dry up in the third quarter.
As a result, the major Wall Street houses are expected to report profit declines of up to 70 per centfrom a year earlier, according to First Call, which tracks profit forecasts. In fact, many of the firms are expected to put in their worst performance since the end of 1994, when bond markets tumbled as interest rates rose.
The profit decline means Wall Street will also be cutting travel and entertainment and back-office costs, a turnaround from the first half of the year when firms were hiring, pushing employment in the industry to a record high of 663,400 in August. Securities employment in New York City alone rose to a record high of 166,100 people, eclipsing the previous record of 163,000 set in 1987.
Merrill said last month it would "implement selective expense reductions" which analysts interpreted as including job cuts. Various reports have put the number of job cuts at up to 3,000.
The Dutch bank and insurer INB last week cut its profit forecast for the second half, and said it would fire 1,200 people at its investment banking arm, ING-Barings, including 200 in the United States.
TravelersGroup Inc and Citicorp, which last week completed their merger into Citigroup, said last month they may cut up to 8,000 people, or 5 per cent of their combined work force.
"The employment in the securities industry tracks very nicely with the ups and down in the market itself," analyst Hal Schroeder at Keefe Bruyette & Woods said recently. "We're going to the trimming process first, major cuts will come later" if market slump continues.
While commission revenues are expected to remain strong, analysts said a quick turnaround of other key businesses is unlikely because of volatile stock and debt markets worldwide.
"For the underwriting markets to come back in any significant way, we need stabilisation of the market for more than two weeks," DLJ's Solotar said.
The weakened outlook has caused brokerage stocks to plummet, with many off 60 per cent from their highs set in July. Investors have also dumped the stocks because they worry about brokers' loans to hedge funds such as Long-Term CapitalManagement, which needed a $3.5-billion bailout last month.
The market rout has caused investment bank Goldman Sachs & Co and money manager Neuberger & Berman to cancel plans to go public.
Merrill, one of the nation's biggest brokers, is expected to earn 53 cents a share in the quarter, down 60 per cent from its record second quarter and 57 per cent from a year earlier.
Other firms, including DLJ and Bear Stearns Cos are seen reporting steeper profit declines.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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