Layoffs on Wall Street Make it a Dead End for Some Brokers

By Susanne Craig and Randall Smith

Staff Reporters of The Wall Street Journal

July 25, 2002

Warren Bischoff was forced out of CIBC World Markets last month as a brokerage branch
manager in Washington, D.C. The 38-year-old Mr. Bischoff, whose paycheck topped $500,000
last year, says he has saved enough to wait six to nine months before taking another job.

“I have plenty of time,” Mr. Bischoff says. “But it’s a hard time to be looking.”

It’s about to get harder. Wall Street securities firms — which have cut a total of 25,910
employees, or 7% of their work force, since the end of 2000, according to the Securities Industry
Association trade group — are bracing for a new round of layoffs based on the stock market’s
swoon during the past three weeks, notwithstanding Wednesday’s strong, but partial, rebound.

Adding to the gloom is that Wall Street’s biggest money machine, mergers-advisory work, is
showing few signs of life. Activity is down 42% so far this year, to $276.3 billion, compared
with deals valued at $474.8 billion a year earlier, according to Thomson Financial. Back out
Pfizer Inc.’s $53.58 billion proposed merger with Pharmacia Corp. this month and merger
activity would be down 53%. As a whole, the securities industry earned pretax profit of $10.4
billion in 2001, less than half the $21 billion a year earlier, the trade group says.
The upshot: Employment levels are bound to catch up with this drastic drop-off in activity. “We
are getting closer to larger cuts,” Salomon Smith Barney analyst Guy Moszkowski says.

Already, the resumes are piling up. “There are maybe 50 managers that I have right now in my
stable here who have been either outsized, downsized or terminated who are looking for a job,”
says Rick Peterson, a brokerage-industry recruiter in Houston. “There have been so many
cutbacks in the number of complexes and branches, there are just fewer and fewer openings for
the kind of quality managers that are available in this environment.”

Some of the biggest firms have done the most significant trimming. Merrill Lynch & Co., with
the nation’s largest brokerage force, has reduced its staff by about 17,400, or roughly 25%, since
the end of 2000. Morgan Stanley shed 4,141 people, or 6.6% of its work force, in that time. A
Merrill spokesman says while he believes the bulk of the layoffs are over, the firm continually
assesses the situation and doesn’t rule out more cuts. Morgan Stanley declined to comment.

The reductions aren’t limited to Wall Street. Merrill analyst Judah Kraushaar says many
securities firms overstaffed in Europe in the rush to expand there, and are aggressively cutting
back investment bankers overseas.

Meantime, some smaller boutique firms have been hammered. This month’s move by
FleetBoston Financial Corp. to shut Robertson Stephens, its investment-banking unit, resulted in
about 900 jobs lost. Wednesday, Cullen/Frost Bankers Inc., of San Antonio, said it would
eliminate about 44 jobs of a 50-employee securities firm, Frost Securities, which will get out of
all research, sales, trading and capital-markets activities.

So far, however, the paring has been selective. The most vulnerable areas have been those like
investment banking, where business is slowest. At the same time, some firms have taken steps to
slash noncompensation costs, forcing executives to fly coach, for instance, rather than business
class. This leaves fewer options to slice expenses than job cuts.

Take Goldman Sachs Group Inc., which nearly doubled its staffing levels from 1997 to 1999,
thanks to a robust stock market and a handful of acquisitions. The big securities firm resisted
rolling back its ranks until March, when it announced it could trim as much as 4% to 6% of its
staff, or as many as 1,360 workers. Just three months later, by the end of the second quarter,
Goldman had eliminated 1,532 positions. A Goldman spokeswoman didn’t rule out further
reductions, saying the firm “will continue to watch the environment carefully to make sure its
staff levels are appropriate.”

All this has translated into a rough ride for those on Wall Street. Six years ago, Mr. Bischoff was
one of the youngest managing directors at his firm, then known as Oppenheimer & Co. As
director of recruiting, he helped the firm open eight brokerage offices, and at one point his
annual expense-account bills alone exceeded $80,000. Most recently, his 45-employee office
generated $10 million in commissions.
Oppenheimer, acquired in July 1997 by Canadian Imperial Bank of Commerce and renamed
CIBC World Markets, has been cutting expenses in its securities operation lately. Last month,
Mr. Bischoff, a Connecticut native and Villanova graduate, says he was replaced by a younger
executive at less than half his pay. Now, he realizes that executives skilled at building up
operations “aren’t needed at a time of cost-cutting.”

Some have given up on the financial world altogether. Five years ago, Jon Reidenouer was a
trader on the institutional sales desk at Morgan Stanley. Today the 28-year-old has exchanged his
nearly six-figure pay for a job waiting tables at the Wintergreen Golf Course near
Charlottesville, Va.

His biggest perk nowadays: Mr. Reidenouer can play a round of 18 holes for $6, half the price of
a cart rental.

In May 2001, Mr. Reidenouer’s boss tapped him on the shoulder and sent him packing. With a
decent severance package in hand, Mr. Reidenouer figured time was on his side and took a short
vacation. When he returned to New York City, he says he turned down several job offers, certain
something better would come along.

Then came Sept. 11, and his hopes of finding employment on Wall Street vanished. He
eventually took a commission-only job on a trading desk at a small Atlanta securities firm, but
says it didn’t suit him. So he quit.

He since moved back to his home state and hopes to shave 10 points off his golf game while he
figures out his next move. Among the occupations he is considering: urban planning and high-
school guidance counselor.

Chris Stavros, a former analyst at UBS AG’s UBS Warburg who was laid off from the financial
giant in January, says he hasn’t given up on Wall Street just yet. Despite landing a second-place
ranking in June in The Wall Street Journal’s “Best on the Street” analyst survey for oil and gas
analysts, he still is pounding the pavement. He says firms that are hiring appear overwhelmed
with qualified, if not overqualified, applicants, so they can afford to be picky.

“I almost feel people are intimidated by the experience out there,” Mr. Stavros says, adding he
still hasn’t given up landing a job. Now, in late July, “people are more interested in hanging out
at the beach than looking over resumes.”

Michael Vanin, a 48-year-old former top branch manager in Boston who left Prudential
Securities, a division of Prudential Financial Inc., in November after 12 years at the firm, faces
some tough choices. Instead of pursuing job leads in other cities, he is holding out for the right
situation closer to his home in Needham, Mass., partly to avoid uprooting his two daughters,
ages 10 and 15, who remain in private school. Meantime, his wife is rejoining the work force as
a nurse, and the family has cut back on discretionary spending like house cleaning and lawn
mowing.
Now that he has reached the point when he had expected to find a new post, Mr. Vanin says if
the job leads he is pursuing don’t pan out, his choices may become less appetizing. “The whole
thing has not been fun,” he notes ruefully.

In a worst-case scenario where he couldn’t find the right job in Boston, he says, “everything
would have to change — sell the house, take the girls out of school, and change to a different
field altogether, possibly in a different city. Everybody’s life would change and everything
we’ve worked for.”

Among the options: going back to being a stockbroker, or return to his former occupation as a
school administrator.