Now the message is delivered in their own language....we are not talking about some textile jobs lost...
Wall Street's high-flyers in free fall
By Alan Deans
The art works have disappeared from the Liberty Street Gallery and the maintenance crew is cleaning up in the hope of letting the space to a new retailer. But the address in the World Financial Centre on the banks of the Hudson River might be too toney in the cool winds of reality now blasting Wall Street.
The office complex is popular with stockbrokers for its sweeping views. Merrill Lynch, which is slashing 3400 jobs from its workforce, has its global headquarters there alongside the offices of Lehman Bros, CIBC Oppenheimer and Nomura Securities. But the high disposable incomes and fat expense accounts their employees enjoyed until recently have gone.
Despite the opulent surroundings and adjoining private yacht club, retailers are obviously also feeling the pinch. The local branch of upmarket clothing store Barneys seems deserted. Nowhere, for blocks around, does anyone flog that quintessential Wall Street symbol – the cigar.
Merrill's action this week to cut its workforce by 5 per cent has cast a pall of gloom over New York City. Apart from being the world's largest stockbroker, it also happens to be the city's biggest individual employer. It will axe 700 heads from its 10,500 Manhattan staff – the deepest cut since the 1987 stockmarket crash – to start a trend that threatens City Hall's recent record of budget surpluses.
Citigroup's Salomon Smith Barney unit is also expected soon to reveal cuts of its own – perhaps numbering 8,000 positions. Bankers Trust could join the list, with redundancies of about 900, as will other full-service international brokers all of which are being hammered by an abrupt seizure in bond markets.
Merrill says most of its cuts will come from its fixed-interest desk, not from the traditional equities trading business. "These operations have almost come to a grinding halt," says a company spokesman. "There is no volume. The markets are closing down, so to speak."
The carnage is all pervasive in the bond sector. There are few new issues of high-yield bonds, emerging market bonds or even investment-grade corporate paper coming to market. While Federal Reserve chairman Alan Greenspan argues that this does not amount to a credit crunch because most market activity has centred on refinancing debt facilities, market players now predict the trouble will continue into next year. By this time, more companies will need to re-enter the market to finance ongoing operations.
Merrill chairman and chief executive David Komansky had this in mind when he said this week that the staff cuts had been made with an eye to future expectations. While the group will simply shrink most of its operations, it also plans substantially to exit the commodities business, close cross-markets trading, restructure its equity-linked debt products and downsize regional currency trading.
A swathe will be cut through information technology spending, including the lay-off of 900 consultants. But Merrill emphasises that it will not risk systems improvement related to Y2K readiness or to handle trading in the euro.
Coming off lightly in all of this is equities. The Dow Jones Industrial Average has fallen 15 per cent during the past three months, yet Merrill is making only minor cuts to its army of Street traders. Komansky says he can see the index falling by another 11 per cent to the 7000 level before the slump ends, so presumably such a decline will not spark fresh job cuts. But pressure could result if share volumes fall from current strong levels. Merrill needs people to handle these trades now, but it could have people sitting idle if the order rate cools off.
Also, firms focused on Wall Street equities are holding tight. Bear Stearns, PaineWebber, Lehman Bros and Donaldson Lufkin & Jenrette have each said in recent days that they are not cutting staff despite their earnings and revenue being under pressure. This group has a smaller exposure to bond markets than larger international rivals.
The pain will be felt, however, in the perks and bonuses that have been spread liberally around the Street. While the '90s are supposed to have been a decade that ignored the excesses of the '80s, there are thousands of stockbrokers who bank incomes of more than a million dollars.
Look no further than Australian-bred Steve Belotti, Merrill Lynch's New York-based head of foreign exchange. He was not available this week to discuss his affairs, but colleagues recount how he has become a big player in the few short years since landing a job as a trainee trader in the Sydney branch of an American bank.
Belotti is said to charter a helicopter frequently at weekends to take him to a residence in the Hamptons, a swank seaside resort area on the eastern end of Long Island. He maintains a substantial upper east-side apartment and is understood to dabble in property development in Vale, Colorado, home of the most expensive addresses in the US.
It is the type of lifestyle every Wall Street employee aspires to. Legendary figures like Drexel Burnham Lambert's Michael Milkin, Salomon Bros' John Gutfreund and Lazard Freres' Felix Rohatyn made Wall Street the centre of American society 10 years ago thanks to their lavish habits. Some of their present-day counterparts are continuing the legend.
King of the pile these days is hedge-fund supremo Julian Robertson. Despite his Tiger Management suffering losses last month put at $US2.6 billion after the Russian market collapse, Robertson deflected some of the heat by announcing a $US25 million personal donation to New York's Lincoln Centre. This gives him the right to name a plaza outside the concert halls after his wife, Josie.
Robertson is well known for his largesse. Last November he gave $US15 million to a town in his home State, North Carolina, to help improve racial harmony. Earlier in 1997, he shelled out $US3 million to name a library after his sister. Forbes magazine estimates his personal worth at $US1.7 billion.
Also prominent is Banker's Trust chief executive Frank Newman. He pockets a salary of more than $US6 million, about 50 times what he earned three years ago when he was headhunted from being Deputy Secretary of the Treasury to turn around BT. He and his wife, Liz, have slipped easily into New York society, sponsoring opening nights at Carnegie Hall and buying a top-line Fifth Avenue apartment. The pair frequently travel the world on the bank's jet, and Liz Newman has frequent use of BT office staff. Some BT employees are reported to disdain Newman because of his high life. They are astonished by the security guards that patrol outside his office and by the way executives have been ejected from elevators so the boss can travel in isolation.
Not every high-flyer, however, has been able to weather the global financial storm. Rothschild operative Wilbur Ross started earning his reputation during the '80s by handling bailouts for big property investors such as Donald Trump and Robert Campeau. He is still involved in such deals, heading a Rothschild vulture fund that focuses on battered Asian businesses.
There are signs, however, that Ross's own wealth has been hit in tandem with the Asian downturn. His wife, Betsy McCaughey Ross, failed last month to secure the Democratic Party nomination in next month's New York gubernatorial election against incumbent George Pataki. Despite the profile she had from being the State's Lieutenant-Governor, her campaign was crippled when Ross withdrew promised election funding of more than $US2 million.
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