On Wall Street, the burning question is not if, but when.
In an industry that was suffering through a long slump even before the Sept. 11 attack on the World Trade Center, another round of cost-cutting and layoffs is inevitable, analysts and recruiters say. But most firms are holding off, reluctant to make the cuts immediately for fear of seeming heartless.
PHOTO: NY TIMES
Indeed, some big investment banks like Lehman Brothers are insisting that they will not dismiss people before the end of the year, choosing instead to dilute the pain by paying employees significantly smaller year-end bonuses and making stock and options a more important component of those shrunken pay packages. Something has to give because Lehman has increased its staff by 17 percent this year but has 10 percent less to pay them.
Morgan Stanley, whose staff has grown about 3 percent to 62,000 workers, faces a similar problem. So far this year, the amount the firm has paid its employees or set aside to pay them at year-end is US$8 billion, down US$1.2 billion, or about US$20,000 per employee, from the first nine months of last year.
A few firms, said Frank Fernandez, chief economist of the Securities Industry Association, might announce some job cuts as soon as this week. But the more common pattern on Wall Street is to start preparing senior investment bankers for their bonuses to be only 40 percent to 60 percent as big as they were last year.
"The overwhelming majority of CEOs will cut bonuses rather than fire people at this point," Fernandez said. "The last thing anybody wants to do right now is hand out pink slips."
But that doesn't mean that all layoffs have been postponed indefinitely. Several people inside or close to Wall Street firms said they expected Bear Stearns to unveil job cuts in September as part of a yearlong cost-cutting campaign and that it was now weighing when it might be appropriate to proceed.
A spokeswoman for Bear Stearns, which was scheduled to report third-quarter earnings yesterday, said Tuesday that she could not confirm or deny those reports.
J.P. Morgan Chase was another firm that delayed laying off people over the last two weeks, but was preparing to press ahead with layoffs this week, according to a person close to the firm. The company said in the early summer that it would cut about 3,000 more jobs on top of the 5,000 that were lost in the merger of J.P. Morgan and the Chase Manhattan Corp. A spokeswoman declined to comment Tuesday.
"Many of the cutbacks firms had intended to execute in September were put on hold," said Joan Zimmerman, a partner in the executive search firm G.Z. Stephens, "not because they think market conditions will improve, but because there is such a heightened concern about employee morale. We are convinced, however, that they will occur before fiscal year-end." For most Wall Street firms, the fiscal year ends on Nov. 30.
In New York City alone, employment on Wall Street peaked at about 200,000 jobs last year, according to the Securities Industry Association. That number had slipped to about 185,000 by April and Fernandez said securities firms had announced more than 12,000 layoffs before the attacks that still had not shown up in the figures.
As those previously announced layoffs resume, they are likely to dilute some of the concerns about the inappropriateness of announcing new job cuts so soon after a catastrophe, recruiters said. So, employment in the industry is almost certain to trend downward into next year.
"It's almost a game of cat-and-mouse or wait-and-see," said Amy Butte, an analyst at Bear Stearns. "Nobody wants to go first."
Before Sept. 11, Butte had expected firms to cut as much as 10 percent of their jobs in the last few months of the year. Now, she said, the timing is harder to predict because of what she called "the sympathy effect."
Most big securities firms still need to shrink parts of their operations to adjust to a bleaker outlook for the financial markets that drive their businesses.
"Everybody's got to reset for an environment that's less robust," said Peter Davis, a consultant with the Cambridge Group in Manhattan. "This is a very difficult decision to make -- whether you cut people before the end of this year."
Nearly every Wall Street firm grew fat during the boom years of the late 1990s. They hired too many people, Davis said, paid them too much and promoted them too fast. "Everything floated up and so everything's got to float down," he said.
As cold as it may sound, he said, managers on Wall Street have an unprecedented opportunity to revamp their businesses after the disaster. In an industry where people have been trained to measure their contribution and, to a large degree, their self-worth, by the size of their bonus checks, managers now must try to foster loyalty amid sacrifice.
"People had already been preparing everyone for more stock, less cash and lower bonuses overall," Davis said. "Does that engender a bit more team play? Maybe it does."
Team play had become a fading concept on Wall Street in the 1990s as most brokerage firms and investment banks evolved from partnerships into public companies and, in some cases, into global conglomerates. Executives and employees on Wall Street now own smaller stakes in their firms and often must answer to big shareholders and the financial analysts who represent them.
"It would have been a sharing of the smaller meal at the table," said John Gutfreund, who in the 1980s ran Salomon Brothers, which is now part of Citigroup. In similar downturns in the past, he said, "We would pay ourselves less, and less to our employees."
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