Layoffs starting to hit market strategists

By Matthew Mogul
Associated Press

NEW YORK — Wall Street cost cuts have found their way to the cushy corner offices where even star strategists are finding themselves expendable.

Electronic artwork on the exterior of the Lehman Brothers building in New York portrays people on the move. Inside, top investment strategists, whose high salaries have been targeted for cost-cutting, are getting their walking orders. Associated Press

Unlike the lower-level workers let go in the early rounds of cuts, these top thinkers — many of them market bulls — were well-recognized Wall Street veterans responsible for predicting market movements and advising where big firms should invest their money.

The pink slips handed to a growing number of these stars — including Jeffrey Applegate, former chief investment strategist with Lehman Brothers, Thomas Galvin, who held a similar position with Credit Suisse First Boston and Bruce Steinberg, Merrill Lynch's bullish chief economist — had less to do with any bad market calls, analysts say, than with the seven-figure salaries they were pulling down.

"The earlier round of cuts were obvious deadwood," said Chuck Hill, head of research at Thomson First Call, a unit of Thomson Financial. "But these were well-respected, savvy guys ... they were also making the big bucks, which probably made them ripe targets."

The banking industry has been hurt by the prolonged economic downturn, declines in investment portfolios, the lack of initial public offerings and a dearth of business advising mergers and acquisitions.

Mergers this year are expected to number about half of what they were just two years ago, and IPOs are down to about a quarter of what they were, according to recent projections from Thomson Financial, which compiles data about the finance industry.

"Until things pick up, all bets are off when it comes to trimming costs," said Douglas Sipkin, an analyst covering investment banks for Wachovia Securities. "These people are very smart, but they are more of a cost center than revenue center and when you've got to cut, that's where you go."

Wall Street has shed about 75,100 jobs in the past 18 months — through a mix of attrition, layoffs and early retirement packages — since employment peaked at 786,100 jobs in April 2001, according to preliminary figures from the Securities Industry Association. The job losses this year alone are the most since the Middle East oil crisis hit the economy in 1974.

"If you look at all these cuts together, it's like getting rid of an entire Merrill (Lynch), which at one point employed 72,700," said Justin Hughes, an analyst for the San Francisco-based Jefferies & Co.

Merrill had 53,400 people on the payroll at the end of September.

Hughes said total industry revenues this year are on pace to fall below the $145 billion registered five years ago, while employment is 16 percent higher than it was then. That means workers this year are bringing in less per person for the company than in 1997.

Strategists offer firms a big picture outlook on the economy, in contrast to researchers, who focus on a specific stock or sector. They are often seen as more impartial than analysts, many of whom have been accused of touting certain stocks to win business for their companies.

In many instances, both star strategists and analysts did become the public faces of their firms, appearing on television interviews and by default helping to brand and market investment products.

The Oxford-educated Applegate had 25 years of Wall Street experience, but that was not enough to save his job last week as Lehman laid him off along with 500 staffers, or 4 percent of its work force.

Galvin, though less experienced, had received accolades for being a top strategist. He got his walking papers a few weeks earlier, along with 100 others in Credit Suisse's 500-person research team.

After teaching economics at Rutgers University and serving as an associate editor at Fortune magazine, Steinberg joined Merrill Lynch in 1986, becoming chief economist in 1997. Steinberg was dismissed in early November.

Neither Applegate nor Galvin returned calls for comment. Steinberg, reached by telephone at his home in East Hampton, N.Y., would not comment.

News this week that Morgan Stanley will cut 11 percent to 13 percent of its research group will likely turn up more familiar names, observers say.

"It's a cyclical industry, like autos and aerospace," said Doug Cliggot, the former chief investment strategist for JP Morgan who left his position earlier this year to sign on at the research arm at Brummer & Partners, a Swedish hedge fund. "There's too many people and too little business ... even good people get fired when that happens."