PATRICIA CHISHOLM December 18 1989


PATRICIA CHISHOLM December 18 1989



After James Morgan lost his job as a money manager at securities dealer Glickenhaus & Co. of New York City in June, 1988, he tried franti-

cally to find another position. Morgan, 54, who took speech classes and improved his dress as part of his job search, now laughs about the extraordinary measures he took, but he also emphasizes that the competition he faced was fierce. Like thousands of other brokerage house employees in the United States and Canada, he was out of work because of Black Monday, the disastrous October, 1987, stockmarket crash. Seven months later, Morgan finally landed a job as a market analyst with Mandrakos Capital Management, although at only half his former salary. Still, Morgan now says that he feels lucky simply to have a job. Over the past month, the number of people looking for work in hia industry has swelled dramatically as a result of layoff announcements by four major U.S. securities dealers. And, despite the Christmas holiday season only weeks away, even more layoffs are expected this month. Said Morgan: “I don’t think we have hit bottom yet. If things keep up like they are, more people will be let go.”

The latest surge of layoffs is sending new tremors through the offices of increasingly nervous Wall Street and Bay Street securities dealers. Since Black Monday, U.S.-based brokerage firms have laid off close to 35,000 people—or about 13 per cent of the workforce. And within just a few weeks last month, the New York offices of industry giants Shearson Lehman Hutton Inc., Drexel Burnham Lambert Inc., Merrill Lynch & Co. and Salomon Brothers Inc., all announced drastic new costcutting measures. Meanwhile, in Canada, RBC Dominion Securities Inc., which is the nation’s largest brokerage firm, released its annual report on Dec. 1, in wrhich it confirmed rumored plans to cut 175 more employees from its payroll, bringing the total layoffs by TSEmember brokerage firms since October, 1987, to 3,900, in an industry that once employed about 27,000 people.

A so-called mini-crash on last Oct. 13, when the Dow Jones industrial average fell by 190 points and the TSE by 141 points, has frightened off investors and prompted the latest

layoffs. Overall, this year’s daily volume on the New York Stock Exchange is up only 3.1 per cent over 1988 and down 11.8 per cent from the highs reached in 1987. In Toronto, daily volume is up 15.6 per cent over 1988, but 12 per cent lower than the highs reached in 1987.

On both sides of the border, the job cuts are part of a more fundamental trend towards reducing size in the securities industry, a trend that began soon after Black Monday. Brokerage firm executives say that, in order to stay profitable as they compete for reduced trading

volumes, they have no other option than to trim staff. Said Doyle Lyons, a vice-president at Merrill Lynch in New York: “If you want to cut costs, you have to have layoffs.”

Some of the most dramatic cuts have occurred at firms that only a short time ago appeared to have escaped business decline. At the same time as it announced its plan to eliminate 175 jobs, RBC Dominion—in which the Royal Bank of Canada has a controlling interest—also reported that its profit climbed by 17 per cent to $32.1 million for the year ended Sept. 30. The earnings figure was RBC Dominion’s highest since 1986, but that apparently did not satisfy the firm’s president, Anthony Fell, who wrote in the annual report that the profit was “disappointing and remains well below our corporate objective.”


As part of its drive to slash its costs even further, RBC Dominion will also close its branches in Kamloops, B.C., and in three Ontario regional offices—Kingston, Cobourg and Thunder Bay—and move the affected employees to branches in other centres. Said Denis Denischuk, RBC’s branch manager in Kamloops: “In their wisdom, our senior executive committee made a hard, cold business decision.”

In the United States, the largest brokerage firm, Merrill Lynch, had been criticized by industry analysts for failing to cut enough staff after the 1987 crash. But on Nov. 23, Merrill’s top management told their 40,500 employees,

including 1,200 in Canada, that unidentified, unprofitable business lines will be eliminated or reorganized and that bonuses, which can account for up to 25 per cent of a broker’s compensation, will be trimmed. Industry executives in New York also said that the restructuring at Merrill could result in the loss of jobs in Canada and of more than 1,000 jobs in total.

The outlook is also uncertain at other big U.S. firms. The second largest, Shearson Lehman Hutton, announced a wrenching reorganization last month that reshuffled some of the firm’s most prominent staff members to less important positions—including its president, Jeffrey Lane. The reshuffling came just three weeks after the Shearson announcement that it planned to drop about 800 employees from the payroll, reducing its staff to 36,300 from a 1988 high of 46,000. And, for the first time in 15 years, brokers’ commissions will also be cut by one to two percentage points, Shearson said. For its part, Drexel Burnham Lambert laid off 100 employees in early November, and a spokesman said that a further 300 will be laid off before the end of the year. Drexel faces more problems than most dealers in adjusting to a sluggish business climate after it made a $780million settlement with securities officials last spring to settle fraud charges. And at the same time, it announced that it would sell its retail brokerage operations, reducing its personnel by about one-quarter. Over the full year, Drexel has cut staff by almost 50 per cent.

Many of the firms were able to avoid the cuts until recently by cashing in on the strong demand for high-risk, high-yield junk bonds. Those bonds have been extensively relied upon to finance a wave of debt-financed buy-outs and mergers. “Since September, though, when the junk-bond business took a nose dive, some of those big firms have had to take stronger costcutting steps,” Merrill’s Lyons said.

Beyond their short-term problems, the beleaguered brokerage firms also face long-term threats to their profits. Last month, a study prepared by the New York-based brokerage firm Morgan Stanley predicted that commission rates on individual transactions—which began eroding when fixed rates were eliminated in the United States in 1975—could decline from the present average of about three per cent to almost zero. Last spring, the Torontobased consulting firm of Brendan Wood, Tutsch and Partners Inc. released an optimistic study in which it predicted that the dollar volume of trading in such areas as the institutional equity, full-service and discount brokerage markets will more than double by 1994. Still, it also noted that the number of dealers competing intensely for business will make it difficult even for established firms to gain a greater share of the market. And while they await an upswing, it appears that the Canadian industry faces more of the painful belt-tightening already well under way on Wall Street.



New York