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"Stealth Layoffs" Sweep across Wall Street

By Louise Story and Eric Dash|The New York Times
Friday, 16 May 2008 | 5:14 AM ET

People on Wall Street seem to be vanishing overnight.

Thousands are losing their jobs as hard-pressed banks cut deep. But while layoffs are nothing new in the financial industry (they come with almost every downturn), this round seems different: it is eerily quiet.

So quiet, in fact, that people refer to these cuts as stealth layoffs. Some bosses hardly say a word after people are fired. At Citigroup, Goldman Sachs and Morgan Stanley, for example, the first clue that someone is gone can be e-mail messages that are returned to senders from a former colleague’s inactivated corporate address.

New York Stock Exchange (NYSE)
Oliver P. Quilla for CNBC.com
New York Stock Exchange (NYSE)

While the financial markets have found a bit of a footing lately, banks are pushing ahead with plans for some of the deepest job reductions in years. Since last summer, banks worldwide have announced plans to cut 65,000 employees.

But exactly how many jobs have been or will be eliminated is unclear. In the past, banks typically made sharp reductions all at once. After the 1987 stock market crash, for example, employees were herded into conference rooms and dismissed en masse.

This time, companies are making many small cuts over the course of weeks or even months. Some people who have lost jobs, and many more struggling to hold them, say banks are keeping employees in the dark about the size and timing of layoffs.

Citigroup, for example, said last year that it would eliminate 17,000 jobs, or about 5 percent of its work force. Then in January, Citi said it would dismiss 4,200 more people. In April, it said an additional 8,700 would go.

By contrast, after the financial upheaval of 1998, when many Wall Street banks pared payrolls, Citigroup eliminated 10,600 jobs, or about 6 percent of its work force at the time.

The idea that banks will slowly wield the knife again and again unnerves many employees. People know the cuts are coming — they just don’t know when or where.

“Nobody knows who is coming in; nobody knows who is going out,” said JoAnne Kennedy, who was laid off by JPMorgan Chase this year. “They want to keep it all as quiet as possible.”

To some bank workers, one round of layoffs seems to blur into the next. At Goldman Sachs, low performers were dismissed from January through March. A few weeks later, the bank quietly began letting more people go. All told, Goldman is axing about 8 percent of its work force, although incoming employees this summer will make up for some of that loss.

At Merrill Lynch, 1,100 people were laid off early this year, mostly in mortgage-related businesses. But in April, the firm announced 2,900 more cuts.

JPMorgan Chase said last fall that it would lay off 100 people in its fixed-income division and then followed up with several smaller rounds of cuts in other parts of the bank. The casualties will keep mounting as JPMorgan melds with Bear Stearns, the troubled investment bank it is buying.

Starting at the top, JPMorgan executives are eliminating jobs at their own bank, redeploying some people to other divisions and replacing others with Bear Stearns workers. As many as 5,500 Bear Stearns employees and 4,000 JPMorgan workers could lose their jobs before it is over.

Morale Goes Down

The steady drumbeat of bad news on Wall Street is sapping morale. Wendi S. Lazar, a partner at the employment law firm of Outten & Golden, said companies are usually better off being open about cutting jobs.

“You’re seeing a very, very inconsistent message to employees,” Ms. Lazar said. “It’s, ‘I don’t know when it’s going to happen, it may be tomorrow, it may be next month; we may be able to keep you, we may not.’ ”

Layoffs are always difficult, but some of the recent cutbacks have been messier than usual. Some JPMorgan employees learned that people from Bear Stearns would get their jobs before the bosses said anything. JPMorgan clients told them first.

Some Lehman Brothers investment bankers found out their jobs were in peril when they saw cardboard boxes and dumpster bins in the hallways in March.

And when Bank of America dismissed some bankers recently, it told them that their annual bonuses had been almost wiped out and that their personal belongings would arrive in the mail. The bank announced many of the layoffs on Feb. 13, two days before many employees would be able to start cashing out stock options.

In January, when Ms. Kennedy was temporarily out of the office at JPMorgan because of surgery, her boss called to say her job had been eliminated. She did not return to her office and ended up asking the bank to send her the photos of her son that she kept on her desk.

“You don’t get to say goodbye to people,” Ms. Kennedy said. “It’s demoralizing.”

At some banks like Bank of America, many laid-off employees are not allowed to return to their desks, because the banks fear departing employees will try to take valuable colleagues or clients with them.

Bank of America branch, New York City.
Oliver Quillia for cnbc.com
Bank of America branch, New York City.

Officials at all of the Wall Street firms declined to comment.

At Credit Suisse, people who were laid off recently were allowed to say goodbye to colleagues. But those who stayed responded with a combination of relief and fear — relief that it wasn’t them, and fear that it might be soon. Many people say they are too worried about keeping their jobs to help friends who are out of work.

“There were mixed emotions because this clearly isn’t the last round,” said an associate who was laid off by Credit Suisse last month. “Banks really aren’t making any money right now, and they haven’t been for a while. There’s only so long you can go and not lay off more people.”

Already, the industry cuts have moved beyond low performers to people for whom the future looked bright just months ago. Analysts say the reductions announced so far will not be enough and that more may come later in the year, before employees are scheduled to collect bonuses.

“People will try to delay them for as long as possible,” Meredith Whitney, the banking analyst at Oppenheimer & Company, said of the layoffs, which she thinks are far from over. “It cuts to the bone.”

Banks and brokerage firms generally pay out about 50 percent of their revenue to employees as salaries and bonuses. Last year that percentage leapt to 70 percent, even as business began to dry up. Ms. Whitney estimates that on average banks announced plans to reduce their work forces by 5 to 8 percent. They probably will have to cut at least twice that amount, she said.

Executives have spent months developing layoff strategies, negotiating severance packages, and carefully penning scripts. Many hire outside consultants, dispatch cost-cutting czars and establish centralized restructuring offices and career placement centers.

For Wall Street employees, the most dangerous days are Tuesdays, Wednesdays and Thursdays. Those are the favored days to fire people, so employees do not have the weekend to stew about it.

Euphemisms for layoffs are making the rounds too. Banks do not just fire people anymore. They engage in “head count reduction,” “reduction in force” and “redundancies.”

And gallows humor is rampant. One joke: A banker calls a colleague and asks, “Are you busy? Or are you lying?”

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