Leaner Staffs Are Predicted for Wall Street
THE stock market may have enjoyed a rally lately, with the Dow Jones industrial average rising about 350 points since last November. But that's little comfort to the scores of equity traders, bond salesmen, investment bankers, security analysts, and support personnel who could find themselves unemployed in the weeks and months ahead as investment houses initiate major cost-cutting and restructuring plans. ``Restructuring'' is the theme at many investment houses here, as they seek to find their own profitable business niches at a time of enormous uncertainty about the long-range prospects for the market.
``The restructuring now occurring is not surprising,'' says Robert Prechter Jr., editor of the Elliott Wave Theorist, a newsletter published in Gainesville, Ga. ``Wall Street is a cyclical industry. The services Wall Street provides expand and contract as market conditions change.''
Since the sales volume in the market has been in a period of contraction since the stock market plummet of October 1987, despite the Dow's recent rise, it follows, Mr. Prechter says, that ``the industry will continue to contract.''
Some 17,000 employees have lost their jobs on Wall Street since the 1987 drop. Many of those had been earning high salaries. Indeed, the shrinkage on Wall Street has been severe enough to make the metropolitan New York City region more vulnerable in a recession, if one were to occur, according to a number of private and government economists here.
Additional thousands of Wall Street employees are finding their jobs at risk. During the past week alone, 200 layoffs were announced by First Boston, a unit of CS First Boston Inc. Morgan Stanley & Co. is believed to have laid off a number of people. Salomon Brothers Inc. recently released 50 employees from its stock trading operations. Goldman, Sachs & Co. has let go some bond traders in recent months. And Drexel Burnham Lambert Group agreed last week to transfer 19 of its 43 retail brokerage offices to Smith Barney, Harris Upham & Co. Other financial houses are working on their own restructuring plans.
``Anywhere from 5 percent to 7 percent of the support people within the investment houses could be let go without the essential functions of the companies being hurt,'' says Perrin Long Jr., a securities analyst with Lipper Analytical Securities Corporation.
``From my own technical work, I think we're due for a substantial decline in the market, probably in 1990 and 1991,'' says Peter Eliades, who publishes and edits Stockmarket Cycles, a newsletter in Los Angeles. Assuming that the market does post a decline in the next year or so, the big brokerage houses ``will be forced'' to make further retrenchments, he argues.
``No business, no growth,'' Mr. Eliades notes.
The ``explosion in financial services that occurred during the 1970s and 1980s created a network that could only be sustained by continued expansion,'' says Prechter, who predicts more liquidation in the period ahead.
Despite the rise in the Dow of late, the number of shares traded is down sharply from pre-October 1987 levels. Individual investors have fled the market. But even institutional traders have started to leave, which translates into flat revenues for financial houses, as well as bleak earnings expectations. And the multibillion-dollar deals that marked the mid-1980s have all but disappeared this year.
Indeed, much of the business on the street today is not involved with actual trading at all, experts say, but rather, the providing of services that earn little in the way of commissions.
The upshot of all this? Analysts here believe that more specialization - the way Drexel is concentrating on investment banking, junk bonds, and corporate finance - will be the pattern of the future.