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
PROMOTED VIDEO
ebooks
ebooksA special investigation by Andy McSmith
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: Software Development Manager

£40000 - £50000 per annum: Recruitment Genius: This is an exciting opportunity...

Ashdown Group: Product Manager - (Product Marketing, Financial Services)

£30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

Recruitment Genius: Compliance Assistant

£13000 per annum: Recruitment Genius: This Pension Specialist was established ...

Ashdown Group: Market Research Executive

£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

Day In a Page

As in 1942, Germany must show restraint over Greece

As in 1942, Germany must show restraint over Greece

Mussolini tried to warn his ally of the danger of bringing the country to its knees. So should we, says Patrick Cockburn
Britain's widening poverty gap should be causing outrage at the start of the election campaign

The short stroll that should be our walk of shame

Courting the global elite has failed to benefit Britain, as the vast disparity in wealth on display in the capital shows
Homeless Veterans appeal: The rise of the working poor: when having a job cannot prevent poverty

Homeless Veterans appeal

The rise of the working poor: when having a job cannot prevent poverty
Prince Charles the saviour of the nation? A new book highlights concerns about how political he will be when he eventually becomes king

Prince Charles the saviour of the nation?

A new book highlights concerns about how political he will be when he eventually becomes king
How books can defeat Isis: Patrick Cockburn was able to update his agenda-setting 'The Rise of Islamic State' while under attack in Baghdad

How books can defeat Isis

Patrick Cockburn was able to update his agenda-setting 'The Rise of Islamic State' while under attack in Baghdad
Judith Hackitt: The myths of elf 'n' safety

Judith Hackitt: The myths of elf 'n' safety

She may be in charge of minimising our risks of injury, but the chair of the Health and Safety Executive still wants children to be able to hurt themselves
The open loathing between Barack Obama and Benjamin Netanyahu just got worse

The open loathing between Obama and Netanyahu just got worse

The Israeli PM's relationship with the Obama has always been chilly, but going over the President's head on Iran will do him no favours, says Rupert Cornwell
French chefs get 'le huff' as nation slips down global cuisine rankings

French chefs get 'le huff' as nation slips down global cuisine rankings

Fury at British best restaurants survey sees French magazine produce a rival list
Star choreographer Matthew Bourne gives young carers a chance to perform at Sadler's Wells

Young carers to make dance debut

What happened when superstar choreographer Matthew Bourne encouraged 27 teenage carers to think about themselves for once?
Design Council's 70th anniversary: Four of the most intriguing prototypes from Ones to Watch

Design Council's 70th anniversary

Four of the most intriguing prototypes from Ones to Watch
Dame Harriet Walter: The actress on learning what it is to age, plastic surgery, and her unease at being honoured by the establishment

Dame Harriet Walter interview

The actress on learning what it is to age, plastic surgery, and her unease at being honoured by the establishment
Art should not be a slave to the ideas driving it

Art should not be a slave to the ideas driving it

Critics of Tom Stoppard's new play seem to agree that cerebral can never trump character, says DJ Taylor
Bill Granger recipes: Our chef's winter salads will make you feel energised through February

Bill Granger's winter salads

Salads aren't just a bit on the side, says our chef - their crunch, colour and natural goodness are perfect for a midwinter pick-me-up
England vs Wales: Cool head George Ford ready to put out dragon fire

George Ford: Cool head ready to put out dragon fire

No 10’s calmness under pressure will be key for England in Cardiff
Michael Calvin: Time for Old Firm to put aside bigotry and forge new links

Michael Calvin's Last Word

Time for Old Firm to put aside bigotry and forge new links