ONCE A SYMBOL OF THE 1980s BOOM, BAY STREET BROKERS FACE HARD TIMES AND BLEAK PROSPECTS
ONCE A SYMBOL OF THE 1980s BOOM, BAY STREET BROKERS FACE HARD TIMES AND BLEAK PROSPECTS
Inside the gleaming glass towers of Toronto’s financial district, it is a scene played out with depressing regularity. Eight years after finishing university and still in his early 30s, the ambitious, high-flying investment banker was pulling in more than $100,000 a year as a vice-president of a major brokerage firm, specializing in corporate mergers and takeovers. But two months before Christmas, the good times abruptly ended. Like more than 2,700 other people cut from the payrolls of Bay Street investment dealers this year, the confident young executive lost his job as a result of a cost-cutting drive brought on by an industry-wide slump. “When you’re doing well in a job, you think you’re impenetrable,” said the investment banker, who asked not to be identified because it might jeopardize negotiations over his severance package. “They had to get rid of a senior person,” he added. “I just got the short straw.”
The current slump on Bay Street is proving to be a humbling experience for thousands of young recruits drawn into brokerage firms in the mid-1980s in pursuit of financial success and glory. In total, the 73 member firms of the Toronto Stock Exchange (TSE) have laid off more than 7,000 employees, one-quarter of the industry’s workforce, since Oct. 19, 1987— the day on which stock markets around the world plummeted, wiping out many of the gains from the record-setting rise in share prices over the previous five years. At first, investors were the ones who suffered most from the stock market’s reversal. But the economic downturn has also depressed the volume of shares traded on the TSE—to an average of 22.5 million shares a day during the first 11 months of 1990 from 29.2 million in 1987. That hurts brokers, who earn a percentage
commission on shares that they buy or sell for clients. Meanwhile, the recession has cost the jobs of thousands of other people in the financial sector, from investment analysts to specialists in mergers and acquisitions. Once a symbol of the prosperous 1980s, Bay Street is now confronting the harsh realities of the 1990s.
Despite the recent layoffs, the income statements of many Bay Street brokerage houses are still awash in red ink. In the first nine months of 1990, TSE member firms lost a combined total of $175.4 million on stock trading worth $59.7 billion, compared with a $37-million profit on trading worth $77.9 billion in the same period in 1989. And brokerage executives say that they may be forced to cut even more jobs in the new year. Said Edmund King, chairman of Wood Gundy Inc.—Bay Street’s second-largest brokerage firm— which has reduced its payroll by about 700 employees to 2,000 over the past year: “We will continue to look for places where we can be more efficient.”
In addition to trimming excess staff, some companies are shutting down entire departments or divisions. On Oct. 10, First City Trustco Inc., owned by Vancouver’s Belzberg family, closed its stock and bond trading division, laying off five highly paid employees. Still, one former corporate finance specialist, who also asked not to be identified, claimed that the fall of many young traders and investment analysts was inevitable. “Only a handful of people can really put together deals,” he added. “A lot of what was going on before the crash was people just answering phone calls.” When the markets turned down and the telephones stopped ringing, dealers began cutting from the bottom, laying off employees who generated the lowest amount of revenue.
The Bay Street crash has been particularly hard on young brokers. Accustomed to long hours, fat paycheques and frenetic deal-making, they often have difficulty coming to terms with the stark reality of unemployment. Ralph Chauvin, a Toronto-based partner with Caldwell Partners International Inc., an executive search and employment counselling firm, says that many of the laid-off brokers he meets are reluctant even to discuss their misfortune. He added, “It is taking these people longer than people in just about any other industry to adjust and relocate.”
As well, Chauvin says that laid-off brokers are unprepared to deal with the world beyond
Bay Street. Many are waiting on the sidelines for the stock market to recover and are living off their dwindling savings from the 1980s boom. Declared Chauvin: “A lot of these people are struggling to sell their fancy cars and things. It’s quite ugly.” But some laid-off employees cannot afford the luxury of waiting. At least one former brokerage firm employee is driving a taxi in Toronto.
For those higher up the corporate ladder, the shock of unemployment is frequently cushioned by the prospect of large severance settlements. Said a former specialist in leveraged buy-outs who lost his job in October: “The old, established partners made sure that they looked after each other.” For some veterans, the severance packages amounted to well over $500,000. A few have used their money to start up small, specialized investment counselling businesses. Others are enjoying extended
Even those who are fortunate enough to have retained their positions are being buffeted by the harsh economic climate. Usually, brokers earn only a small base salary. But every time they trade shares, the buyer or seller pays a commission— ranging from one to eight per cent of the value of the stock traded. Traditionally, the brokerage firm takes anywhere from one-half to three-quarters of that commission, while the rest goes to the broker. In good times, investment dealers often supplement that with bonuses from the firm’s profits. In the boom years of the mid-1980s, even some inexperienced recruits with base salaries of $30,000 earned well over $100,000 a year. Now, with trading volume falling, many brokers are struggling to earn half
of their former incomes. Among the hardest hit are so-called retail brokers, who deal mainly with small individual investors and make up the largest proportion of the industry’s sales force. They are squeezed by their own employers, as well as by the general market downturn. David Doritty, 33, for one, says that when he joined Nesbitt Thomson Inc. as a retail salesman in 1981, junior brokers on Bay Street were generally allowed to keep 33 to 40 per cent of their commissions. But in the past three years, he says, the brokers’ share has dropped to as low as 23 per cent. In September, 1989, the bleak prospects in retail trading led Doritty to move to the Toronto office of Levesque Beaubien Geoffrion Inc., where he sells investment research to pension fund managers, insurance companies and other large institutions. Unlike
small investors, they tend to keep a fixed proportion of their assets in shares and continue to trade even when the market is weak. Doritty, who is married with two children, says that he now earns less than he did at the height of the 1980s bull market, but that he does not regret his decision to switch jobs. “The retail business was drying up,” he adds. “I can’t believe that anyone on Bay Street is earning a living in retail.”
Even top-selling brokers are feeling the impact of the slowdown. As recently as three years ago, Jean Hough, a vice-president at ScotiaMcLeod Inc., was generating more than $1 million a year in commissions. Hough, a 28year veteran of the stock market, is one of Canada’s highest-paid brokers. She says, however, that since the mid-1980s, the volume of transactions she handles has dropped by about 25 per cent. Hough, 59, declines to reveal her income, but she acknowledged that she still earns enough to afford her Mercedes-Benz automobile, a home in Toronto’s affluent Rosedale district that she owns with her husband, a retired broadcasting executive, and frequent trips abroad. She said that her biggest problem is the boredom caused by the slowdown. Hough added that she is frustrated because she believes that many of her clients are missing out on good investment opportunities. “This is the time to be buying,” she said. “But nobody’s in the mood for it.”
The recent layoffs have also had a sobering impact on students currently enrolled in university business programs. Each year, about 250 of them receive a master of business administration degree from the University of Western Ontario in London, which is home to one of Canada’s largest and best-known business schools. Three or four years ago, half of those graduates set their sights on highly paid careers on Bay Street, according to Lynne Sheridan, the school’s director of student services. As a result, competition for the 30odd entry positions offered each year by Bay Street investment dealers was intense. Declared Sheridan: “For most students, a job with an investment dealer was the be-all and endall.”
Now, many of those same people are out of work. “People who had thought they’d died and gone to heaven suddenly came crashing back to earth,” said Sheridan. This year, she adds, Bay Street firms appear likely to hire only about a dozen of Western’s graduates.
Senior brokerage firm executives are reluctant to predict when market activity—and their brokers’ earnings—will begin to recover. Said Wood Gundy chairman King: “It’s hard to pick a time when you hit the bottom. We won’t know until well after it has happened.” In the meantime, Gundy and its competitors will continue to search for more ways to cut costs. Barring an unexpected turnaround, the only financial indicator that appears likely to rise on Bay Street in the coming months is the number of unemployed brokers and investment bankers.
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