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Wednesday, 4 April, 2001, 21:31 GMT 22:31 UK
Stock falls hit Wall Street jobs
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The biggest Wall Street names are laying off staff
By BBC News Online's North America business reporter, David Schepp

The declining US stock market has resulted in fewer jobs at brokerage firms that just months ago were clamouring to hire the best and brightest.

Hurt by tumbling stocks and the accompanying disinterest by investors, firms that dabble in investment banking and stocks are cutting jobs as a way to rein in costs.

Bear Stearns and Citigroup have already announced plans to make modest job cuts, while Morgan Stanley was the subject of the latest rumour mill, expected to issue pink slips to about 1,000 brokers.

Morgan Stanley denied the speculation, which was the source of an article that appeared in Wednesday editions of The Wall Street Journal.

Responding to the report, a Morgan Stanley spokesman said the company has no plans to decrease the number of its individual investor group financial advisors.

"In fact, our intent is to grow our sales force to serve investors nationwide."

But a precipitous drop in stock prices in the first three months of the year still means other brokerage firms will soon have to face the reality that waning interest among investors more equals lower revenues.

"It's inevitable", says Lauren Smith, analyst at Keefe Bruyette & Wood. "Things are obviously weak."

Tumbling tech stocks

Driving investor disinterest is the dramatic tumble in US stocks late last year and again during the first three months of this year. The Nasdaq Composite Index, a tech-stock bellwether, has lost 32% of its value since 1 January.

Meanwhile, the Dow Jones Industrial Average, comprised of some the US's most prestigious corporations, is down 12% for the year and off 16% from its yearly high.

Despite companies' affirmations to the otherwise, layoffs are the rule rather than the exception. And job cuts can be expected in the sectors hit hardest by the stock sell-off -- technology and telecommunications.

"You can't expect every year to be a banner one, but by that same token, when things turn down, it's similarly irrational to expect every future year to be as lacklustre," says Mark Constant, analyst at Lehman Brothers.

Last month, Charles Schwab, the world's biggest online broker, issued a profit warning and said it will cut between 11% and 13% of its staff to save costs.

Online broker Ameritrade has already cut its workforce by 9% and more financial firms are expected to follow.

Balancing act

Brokerage house have to play a delicate balancing act when it comes to staffing. Too few results in poor customer service and the inability to expand when the economy picks up.

Too many staff, as many securities firms are now dealing with, means bloated costs that have to be trimmed in order to keep stockholders happy.

For example, in 1998 Merrill Lynch cut over 3,000 jobs in a move aimed at cutting costs. It soon found, however, that it did not have the flexibility to expand once markets rebounded and investor interest again picked up.

In response to that scenario, many firms elect to hang onto to the talent they have found in the hopes that a economic turnaround is just around the corner.

"It's tough. It's a very unique industry," says Michael Franzino, managing partner at executive search firm Heidrick & Struggles, who adds that laying off staff is tricky because you don't know if you can get them back if things pick up.

"You fire 15% of your staff, and the market snaps back -- those guys may not be available," he says.

So when can employees of securities firms start handing out pink slips?

Says Keefe's Smith, "I don't think [they can wait] much longer."

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See also:

01 Apr 01 | Business
20,000 City jobs to go
30 Jan 01 | Business
ING Barings axe falls on London
03 Apr 01 | Business
Citigroup to lay off staff
16 Jan 01 | Business
Profit drop at Bank of America
22 Mar 01 | Business
Charles Schwab cuts staff
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