The job cuts in the City of London and on Wall Street will kick off tomorrow when Merrill Lynch, one of the largest and most powerful global investment banks, is expected to lay off 3,000 employees around the world. Of those, 400 are expected to be in London.
The move will be taken as a lead that other banks are expected to follow in the next few months. Almost all of the world's major trading houses have suffered heavy losses in recent months as a result of the turmoil in Russia and the Far East, and the resultant collapse of the world's stock markets.
Rumours have consistently circulated that banks such as Barclays and Credit Suisse First Boston were preparing to lay off workers.
Some experts estimate that as many as 50,000 workers in London could be made redundant as their employers attempt to adjust to the harsher climate in the world's markets.
Senior financiers now widely admit that the turmoil is likely to get worse before it gets better, prompting a round of retrenchment. "I would be surprised if there isn't more bad news," one banker said yesterday.
New York bankers fear that the present market crisis may be only the beginning of a much worse disaster, casting doubt not just on their jobs but on the survival of some of their firms. The atmosphere on trading floors is tense, one said at the end of last week. "People are very worried," he said. There is nervous talk of the stability of the financial system itself, which is creaking under the strain.
However, observers are cautioning against excessive gloom. Although the mood is grim, no one in London expects the situation to be as bad as the great bear market of the early 1970s, when the stock market lost three- quarters of its value and one third of City employees were thrown out of work. So far, the FTSE 100 index has fallen by just over 20 per cent from its peak in July.
As market after market crashes - starting with Asia, carrying on through Russia to threaten Latin America, taking stocks and currencies out - banks are forced to strengthen their balance sheets to guard against losses. That in turn means selling off more securities, which weakens other markets. Investors and institutions alike are piling their money into cash, as the safest haven when markets are in chaos.
The preferred investment had been 30-year US Treasury bonds, whose prices had soared, sending interest rates to their lowest in decades. Last week the US dollar suffered its largest decline in a quarter of a century against the yen. That, in turn sent bonds down, scaring investors even out of Treasury bonds. That sort of flip-flop persuades many that the safest place to be at the moment is out of the market altogether, said the New York banker.
Rumours are rife of closures and job losses, though so far the damage is limited. There are also concerns that the rumours are sometimes malicious: the Securities and Exchange Commission is investigating what seems to have been a concerted campaign of destabilisation aimed at the firm Lehman Bros, which was forced to defend itself after rumours circulated that it was about to be sold.
The Securities Traders Association's annual conference in southern Florida last week was a more subdued occasion than usual, those attending said. ING Barings had said last week that it would lay off 10 per cent of its US work force, and Travelers Group and Citicorp, which are merging, will cut as many as 5,000 jobs, or 5 per cent of their combined work force.Reuse content