BusinessWeek
A Record Year for Layoffs in Finance
Tuesday October 23, 8:08 am ET
By Steve Rosenbush


It's official. This is the worst year ever for layoffs in the U.S. financial-services industry -- and there's still more than two months to go.

As of October, finance companies had announced 130,000 job cuts for the year to date, according to outplacement firm Challenger, Gray & Christmas. That's more than double the 50,000 cuts announced in 2006 and well ahead of the record 116,000 announced in 2001. Finance firms are reeling from deep losses in subprime mortgages, as well as from risky corporate bonds and loans. "It's the worst year on record for job cuts in the financial-services sector," says John Pedderson, a Challenger, Gray spokesman. While the firm tracks job cuts, it makes no effort to compare them to job creation, or to track total employment for the sector.

Wall Street Slashes Workforce

About 80% of the job cuts have been announced during the last two months, as the depth of the housing recession has become more apparent, according to Pedderson. The cuts have hit mortgage lenders particularly hard, which isn't a surprise. Countrywide Financial (NYSE:CFC - News), the largest U.S. mortgage lender, cut jobs in September. The lender, which employed about 56,000 people before the cuts, eliminated up to 12,000 positions. Mortgage lender IndyMac Bancorp (NYSE:IMB - News) said in September it would eliminate about 1,000 workers. Accredited Home Lenders Holding said in August it would cut about 1,600 jobs. That same month Capital One (NYSE:COF - News) said it would close its Greenpoint mortgage unit, eliminating about 1,900 jobs.

The job cuts have spread well beyond brokers in the subprime mortgage business, though. Senior mergers-and-acquisitions bankers, financiers, and traders are getting the ax, too. On Wall Street, losses stemming from a liquidity crisis (BusinessWeek.com, 9/17/07) are leading to the first major job cuts since 2003. Morgan Stanley (NYSE:MS - News) is slicing 300 jobs and Bear Stearns (NYSE:BSC - News) 310. HSBC (NYSE:HBC - News) is eliminating 750 positions, Credit Suisse (NYSE:CS - News) is cutting 170, and UBS (NYSE:UBS - News) is eliminating 1,500. Merrill Lynch (NYSE:MER - News) is slashing an undisclosed number of jobs from its subprime mortgage unit.

At Morgan Stanley, the job losses were mostly in the institutional-securities business, which includes investment banking, fixed income, equities, and research, according to one person familiar with the matter. About two-thirds of the cuts are in the U.S., with most of the remainder in Europe and a handful of cuts in Asia. A few people who lose their jobs will be offered new positions in India and China, where Morgan Stanley's business is growing and the right sort of talent is still difficult to find locally. "As part of our yearend process, we are selectively resizing some of our business to reflect current market conditions, as well as reallocating resources to those regions outside the U.S. where we see the best potential for growth," says Mark Lake, a Morgan Stanley spokesman.

Senior Dealmakers Aren't Immune

It's difficult to say just what percentage of investment banking jobs are being eliminated, because the firms generally don't disclose the number of bankers they have. Experts believe that the job cuts are about 10% of the workforce, and that the cuts in certain areas with lots of exposure to subprime mortgages and leveraged buyouts will be deeper, according to Gary Matus, a managing partner at executive search firm Egon Zehnder International.

So far, the job cuts in investment banking are about half as deep as the cuts that followed the stock market crash of 2000. But after years of job and income growth (BusinessWeek.com, 1/9/07) in the investment banking world, the cuts will feel like a shock. And banks tend to be leaner than they were in the early part of the decade, so the job cuts are hitting senior dealmakers such as team leaders earning $3 million to $5 million a year. "We're talking about the most dramatic adjustment to the investment banking talent pool in five years. It feels serious to me," Matus said.

Private Equity Unscathed So Far

Private equity firms and hedge funds have largely escaped the job cuts so far, even though their expected returns have dropped. "Private equity is still pretty insulated," says Brian Korb of Glocap Advisors, an executive search firm that serves the private equity and hedge fund sectors. Industry experts say private equity firms maintained lean shops even at the height of the boom, often outsourcing research and other work to consultants. One hedge fund manager who declined to be identified said he didn't have much room for job cutting, but that he would be spending less money on research. Another hedge fund manger who also spoke on condition of anonymity said he had eliminated research positions from his budget years ago, and employed only a few traders capable of generating enough revenue to pay for their own compensation.

Finance professionals stand to lose more jobs if the problems in the credit and equity markets don't settle down during the next few months. "There is some fear, for sure, that there will be more job cuts," said one finance industry executive who declined to be identified. The stressful year (BusinessWeek.com, 10/14/07) for finance professionals could still generate more anxiety before it's finished.