Pink slips rain down on Wall Street traders

VIEW FROM WALL STREET

The market is soaring, the tulips are out in Battery Park and a few brave souls on Wall Street are daring to smile.

With spring, they are hoping to banish the memory of a winter of chilling blizzards - not of the white stuff but of pink slips - the notices American workers get when they are laid off.

Winded by the steep downturn of 1994 - Wall Street's annus horribilis - all the topsecurities firms have taken the axe to their own employees, slashing their workforces worldwide from 5 to 15 per cent, and seeking otherwise to cut costs and compensation.

And while the worst may be over, the tremors and the lay-offs are still going on. By some estimates, one in ten people in the securities business in New York will be out of a job by the end of the year.

While the crash of October 1987 was immediate, what happened to Wall Street in 1994 was more gradual and insidious. Only during this winter did the full awfulness of the slump emerge. The Institutional Investor recently noted that "more wealth was wiped off balance sheets than in any other stock market debacle since the crash of 1929".Combined pre- tax earnings of the members of the New York Stock Exchange tumbled to $1.2bn (£75m) last year compared with $8.6bn in 1993.

Triggering the massacre was the series of interest rate rises introduced by the Federal Reserve since February last year, as it manoeuvred to avoid an overheating of the US economy. The ascending rates were especially bad news for fixed-income bonds.

Business nosedived while several houses found themselves lumbered with huge inventories that became ever more difficult to unload. For bonds, 1994 has gone down as the worst year on record. Meanwhile, 1994 offered much else that everyone would rather forget, including the Orange County derivatives disaster.

The debacle is forcing the big firms to rethink their strategies, protect their share of an increasingly crowded market and - above all - to cut expenses.

Perrin Long, an analyst with Brown Brothers Harriman, says: "Everybody is scrambling to try to get themselves organised and focused in the direction they think they should be going, and it's difficult for them," . Among the common concerns is that they have moved too fast into foreign markets.

No firm among the big players is immune. Even the venerable Goldman Sachs, the last big partnership on the Street, moved to shed 1,000 jobs this winter, on top of 500 cut last autumn. The mighty Merrill Lynch cut away 500. CS First Boston, reporting 1994 profits down by half compared with 1993, confirmed it was paring its workforce by 15 per cent and closing down operations in one badly hit area, municipal bonds.

And according to Howard Gabel, president of the Wall Street recruitment firm, GZ Stephens, the haemorrhaging goes on. "People are still leaving firms voluntarily or less than voluntarily, and the firms are still getting leaner, no question about it", he said. And once you are shown the door, the prospects for finding new employment are not good. "It is very hard because the contraction is occupation-wide," Mr Gabel added. "I don't know what people will do. Some will do other things with their lives."One thing more: if you do find safe harbour, you may not earn as much money as you did before.

By revealing especially dreadful results and by attempting to pioneer a less generous pay structure, one firm - Salomon Brothers - has recently generated more headlines than anyone on Wall Street.

Salomon admitted that its performance in 1994 was "awful", with an overall loss for the year of $399m. It was the first time that the firm had failed to produce a profit since it went public in 1981.

Among the measures taken to remedy the situation were the closure of the private investment department catering for wealthy individuals and a 5 per cent reduction in its workforce. Much more controversial, however, has been the effort to reform pay structures, which was begun last October by its chief executive, Deryk Maughan. Designed to link traders' earnings with the overall performance of the company - rather than just the results in their own departments - the initiative promises to cut the fixed pay of some traders by two thirds.

The move was backed by Warren Buffett, the Omaha-based investor who holds 20 per cent of the voting rights of Salomon acquired when he saved it from oblivion after a 1991 bonds-trading scandal.

Faced with mass defections by some of its key managers, Salomon was forced in mid-April to relent a little, by creating a new fund to finance special rewards for some traders who perform better than the overall profits of the firm suggest. But management is apparently still determined that its reforms will stick over the longer run.

"If we are not willing now to accept the responsibility for raising the returns of our business, when will we?," Mr Maughan asked.

Some analysts believe that Salomon will not only survive its current adversity but that it may provide a more sane model for staff compensation that the whole industry will copy.

Meanwhile, it is more than blossom that is brightening the outlook on the Street. Retail securities firms, such as discount brokers Charles Schwab, are booming: merger and acquisition activity has been rising strongly for several months.

Most importantly, the evidence is that the Fed may now have done all it needs to to calm the economy. Mr Long of Brown Brothers Harriman expects at least that this year will be better for these securities firms. He predicts earnings of the NYSE members to total somewhere around $3.5bn, which is roughly midway between what they recorded in 1993 and in 1994.

For those with the pink slips, it might be worth waiting a while. Wall Street could be rehiring before long.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA special investigation by Andy McSmith
Arts and Entertainment
Larry David and Rosie Perez in ‘Fish in the Dark’
theatreReview: Had Fish in the Dark been penned by a civilian it would have barely got a reading, let alone £10m advance sales
News
Details of the self-cleaning coating were published last night in the journal Science
science
News
Approved Food sell products past their sell-by dates at discounted prices
i100
News
Life-changing: Simone de Beauvoir in 1947, two years before she wrote 'The Second Sex', credited as the starting point of second wave feminism
peopleHer seminal feminist polemic, The Second Sex, has been published in short-form to mark International Women's Day
News
i100
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Evening Administrator

£8 per hour: Recruitment Genius: This Pension Specialist was established early...

Guru Careers: Executive Assistant / PA

£30 - 35k + Bonus & Benefits: Guru Careers: We are seeking an Executive Assist...

Ashdown Group: Graduate Application Support Analyst

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Reach Volunteering: External Finance Trustee Needed!

Voluntary post, reasonable expenses reimbursed: Reach Volunteering: Would you ...

Day In a Page

Homeless Veterans campaign: Donations hit record-breaking £1m target after £300,000 gift from Lloyds Bank

Homeless Veterans campaign

Donations hit record-breaking £1m target after huge gift from Lloyds Bank
Flight MH370 a year on: Lost without a trace – but the search goes on

Lost without a trace

But, a year on, the search continues for Flight MH370
Germany's spymasters left red-faced after thieves break into brand new secret service HQ and steal taps

Germany's spy HQ springs a leak

Thieves break into new €1.5bn complex... to steal taps
International Women's Day 2015: Celebrating the whirlwind wit of Simone de Beauvoir

Whirlwind wit of Simone de Beauvoir

Simone de Beauvoir's seminal feminist polemic, 'The Second Sex', has been published in short-form for International Women's Day
Mark Zuckerberg’s hiring policy might suit him – but it wouldn’t work for me

Mark Zuckerberg’s hiring policy might suit him – but it wouldn’t work for me

Why would I want to employ someone I’d be happy to have as my boss, asks Simon Kelner
Confessions of a planespotter: With three Britons under arrest in the UAE, the perils have never been more apparent

Confessions of a planespotter

With three Britons under arrest in the UAE, the perils have never been more apparent. Sam Masters explains the appeal
Russia's gulag museum 'makes no mention' of Stalin's atrocities

Russia's gulag museum

Ministry of Culture-run site 'makes no mention' of Stalin's atrocities
The big fresh food con: Alarming truth behind the chocolate muffin that won't decay

The big fresh food con

Joanna Blythman reveals the alarming truth behind the chocolate muffin that won't decay
Virginia Ironside was my landlady: What is it like to live with an agony aunt on call 24/7?

Virginia Ironside was my landlady

Tim Willis reveals what it's like to live with an agony aunt on call 24/7
Paris Fashion Week 2015: The wit and wisdom of Manish Arora's exercise in high camp

Paris Fashion Week 2015

The wit and wisdom of Manish Arora's exercise in high camp
8 best workout DVDs

8 best workout DVDs

If your 'New Year new you' regime hasn’t lasted beyond February, why not try working out from home?
Paul Scholes column: I don't believe Jonny Evans was spitting at Papiss Cissé. It was a reflex. But what the Newcastle striker did next was horrible

Paul Scholes column

I don't believe Evans was spitting at Cissé. It was a reflex. But what the Newcastle striker did next was horrible
Miguel Layun interview: From the Azteca to Vicarage Road with a million followers

From the Azteca to Vicarage Road with a million followers

Miguel Layun is a star in Mexico where he was criticised for leaving to join Watford. But he says he sees the bigger picture
Frank Warren column: Amir Khan ready to meet winner of Floyd Mayweather v Manny Pacquiao

Khan ready to meet winner of Mayweather v Pacquiao

The Bolton fighter is unlikely to take on Kell Brook with two superstar opponents on the horizon, says Frank Warren
War with Isis: Iraq's government fights to win back Tikrit from militants - but then what?

Baghdad fights to win back Tikrit from Isis – but then what?

Patrick Cockburn reports from Kirkuk on a conflict which sectarianism has made intractable