Wednesday, September 2, 1998
RBC cuts back salaries, eyes layoffs
By ROD McQUEEN
Senior Writer The Financial Post
Revenue-starved investment dealers are slashing salaries and invoking other cost-cutting steps
in a
desperate attempt to remain profitable. Those measures may include layoffs.
"Times have definitely changed. Revenues have been under pressure. Our employees have to
realize
we're in a different environment," said Reay Mackay, president and chief operating officer of
RBC
Dominion Securities Inc.
"We're into uncharted waters. I've been in this business 35 years and this is the worst I've ever
seen.
None of us knows the extent of the collateral damage from this marketplace."
RBC had been working on a cost-cutting exercise since mid-July. With stock markets off 20%
since
April and the C$ swooning 11% from a year ago, a memo was dispatched last Thursday to all
164
director-level officers advising that salaries would be cut by 15% for the 15 members of the
executive
O˜˜_wO˜˜Os$˜˜F$o A similar review of expenses was
begun nine months ago at Nesbitt Burns Inc., the investment dealer
owned by Bank of Montreal that would be combined with RBC if the merger with Royal Bank of
Canada is approved.
"We don't control our revenue base, but we can control our costs," said Aubrey Baillie, Nesbitt's
deputy chairman and chief operating officer. "The realities of the market the last two months
make that
even more necessary."
Costs incurred during Nesbitt's fiscal year, which ends this month, will be about the same as the
previous year's, despite increased spending for year 2000 computer modifications and
preparations for
Europe's single currency.
But for the September 1999 year-end, Baillie says he plans to reduce costs by "at least 10%."
"We have been in a very attractive market for five or six years. We just knew that could not
continue,"
he said.
Underwritings, the main source of revenue for brokerage firms, have dried up. Reduced profit
will lead
to smaller bonuses throughout the ranks.
Last December, pay packet records were set across the industry. Among those whose
compensation
was made public were:
John Hunkin, president of CIBC Wood Gundy Securities Inc., at $4.3 million plus CIBC shares
worth
$5.9 million.
RBC chairman Tony Fell, with a base salary of $302,000 and a bonus of $6 million.
Gundy's 5,500 employees totalled $1.24 billion, or an
average of $225,000 per employee. Wood Gundy has yet to tell employees about any plans to
cut
spending, but it is safe to presume something is in the works. On Aug. 6, Canadian Imperial
Bank of
Commerce issued a surprise warning that third-quarter profit would be 40% below forecasts.
"Costs are always being looked at. It's a constant battle on costs and on revenue throughout our
business," said Dick Falconer, vice-chairman of CIBC Wood Gundy.
To date, no firm has announced steps anywhere near as specific as those taken by RBC, where
chairman Fell's cheese-paring ways are legendary.
"Our staff count is still a little too high, so if any of you would be happier working somewhere
y, everybody wins. We're happy, you're happy, and the
firm saves a termination payment," Fell told a black-tie audience of colleagues at one recent
shareholders meeting.
Fell's firm has now instituted a hiring freeze, cancelled attendance at all seminars or
conferences,
reduced travel in general and halted any capital expenditure. Even purchases already approved,
but not
made, will have to be reconsidered.
RBC last took similar action in 1991, when a belt-tightening lasted nine months. This time
around,
Mackay has asked all business units to review their budgets and submit plans, including layoffs
among
the 5,500 employees, to meet the company-wide cost-cutting objective of $50 million, or about
10% of
total expenditures.
"Tony Fell has taken these steps every time we've gone into a real significant downturn in our
industry.
He sets the example at the top. He's done this each and every cycle that I can recall," said a
competitor
who asked for anonymity.
"Every firm on the street will be addressing the same issue. They won't necessarily cut salaries,
but
cost constraints will be a No. 1 priority in every firm in the business." |
