Wall Street firms, set to take in the lowest revenue since 1997, are likely to cut more jobs in coming months, recruiters and money managers say.
In 1997, investment banks including Morgan Stanley Dean Witter & Co, Goldman Sachs Group Inc and Lehman Brothers Holdings Inc employed about 285,996 people. Now the workforce is 346,221, or 60,000 higher, according to industry statistics, even after the biggest cutbacks in a quarter century.
Firms refrained from more firings in part because they expected an economic recovery would spur stock sales and mergers, boosting fees and profits for the industry, some investors say.
With mergers down 43 percent this year and stock sales 13 percent lower, Morgan Stanley, Goldman, Lehman and Bear Stearns Cos next week are likely to report an average drop of 10 percent in quarterly profit, analysts say.
"Major cutbacks have to happen because it's just impossible to imagine current staff levels in this business environment," said Richard Lipstein, managing director at recruiting firm Gilbert Tweed Associates Inc.
The industry generated US$38 billion in revenue in the first quarter, according to the Securities Industry Association. At that rate, Wall Street firms would take in US$152 billion this year, the lowest since 1997's US$145 billion, the group's statistics show.
Revenue of US$152 billion would be a drop of 22 percent from last year's US$195 billion and a 37 percent decline from the industry's peak of US$245 billion in 2000, SIA statistics show.
The cutbacks so far on Wall Street -- firms eliminated 62,000 jobs in the 12 months ended in May, the US Labor Department says -- have reduced expenses. Still, they haven't been enough to offset the decline in revenue from the slump in underwriting and merger advice.
Merrill Lynch & Co, which saw profit per employee fall to US$9.98 last year from US$52.56 in 2000, cut 15,000 jobs last year. As a result, non-interest expenses fell to 80 percent of revenue in the first quarter from 85 percent six months earlier.
Goldman's expense ratio fell to 77 percent in the February quarter from 79 percent in August, while Morgan Stanley fell to 70 percent from 74 percent, and Bear Stearns dropped to 78 percent from 83 percent in the same span.
Credit Suisse Group will continue "focusing on cost-control efforts," Chief Executive Officer Lukas Muehlemann said last month as its New York-based securities arm, Credit Suisse First Boston, reported a first-quarter loss even as personnel expenses fell 30 percent.
Firms in Europe, including Schroder Salomon Smith Barney, UBS Warburg, and Dresdner Bank AG, plan further cutbacks.
"I expect the hemorrhage to continue all throughout the summer," said Philip Middleton, a partner in the financial services division of Ernst & Young in London. Executives "are just starting to realize that they've hung on to people in the hopes that things would pick up and it's not going to happen." In the US, the S&P 500 Index is down 12 percent this year and may have a third straight annual drop for the first time since the 1939 to 1941 period.
With stock prices dropping, chief executives aren't willing to sell shares or make acquisitions, crimping securities firms' profit.
Lehman, which reports results Tuesday before the market opens, probably earned US$1.05 a share in the second quarter ended May 31, according to Thomson First Call's analyst survey. That would be a 24 percent drop from last year's second quarter for the fourth-biggest US securities firm by capital, and the sixth consecutive drop.
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