The ax is falling slowly on Wall Street, but it's falling.
Six months into a steep financial market decline, many of the nation's leading securities firms have laid off hundreds of traders, brokers and other employees to cut their losses in bonds and stocks.The cutbacks disclosed over the past two weeks are nothing like those that followed the 1987 crash, when 50,000 jobs were slashed. But the worst may be yet to come.
If the current bear market persists through the next few quarters, financial firms could slash up to 8,000 employees, or up to 8 percent of total jobs, over the next year, according to Perrin Long, a securities industry analyst at First of Michigan Corp. in Chicago.
"This recent round of layoffs is not even one-tenth of 1 percent," Long said Wednesday. "The next eight to 12 months are going to be tough."
The job outlook - the worst since 1990 - suggests Wall Street management expects more interest rate hikes by the Federal Reserve Board, on top of the four already executed by the central bank since February.
The market decline caused by the rate increases has particularly hammered fixed-income instruments such as bonds, whose value is eroded by increases in rates on new securities.
Smith Barney Inc. on Tuesday became the latest casualty of the rocky rate environment, laying off about 70 employees in its capital markets group, or nearly 5 percent of its 1,600 stocks and bonds staff.
The Smith Barney cuts, affecting everyone from traders to clerks, were a response to the market downturn as well as the firm's merger last year with Shearson Lehman Brothers' asset management and brokerage business, which left staffing levels too high, a company spokesman said.
Before that, Merrill Lynch & Co., the nation's largest brokerage, laid off 4 percent, or 90 of its 2,500 fixed-income employees.
"We continue to selectively hire and adjust head count as business demands," said Merrill Lynch spokesman Rich Silverman, citing the downturn in the stock and bond markets since the Fed first cut rates.
Last week, PaineWebber Group Inc. laid off 35 fixed-income employees, or 8 percent of the division's work force of 435. The brokerage estimates the cuts will save it $60 million over the next year.
The outlook for the future is gloomy. Prudential Securities Inc. plans to cut up to 500 of its 18,000 workers by year end - mainly support staff such as accountants and clerks - according to a company executive who spoke on condition of anonymity.
The layoffs are far-reaching, from six-figure income bond traders to executive secretaries, but are hitting some areas harder than others. For example, workers in mortgage-backed securities are expected to get more pink slips because the market for many exotic variations of their financial instruments has all but dried up.
Remaining workers in affected departments could find bonuses - which boosted typical Wall Street compensation by 30 percent last year - sharply reduced, according to Jacques Andre, a partner with Paul Ray Berndtson, an executive search firm.
"If you're sitting there in the mortgage area and you're in the wrong firm, (the reduction in bonus) will be sharp," Andre said.
Another factor in the cost-cutting is a steep drop in volume of new securities sold by corporations and other issuers to raise capital. In the first half of 1994, new issues of domestically sold stocks and bonds dropped 16.5 percent to $433.1 billion, according to Securities Data Corp.
As a result, total underwriting of new debt at Wall Street firms - which act as middlemen between sellers of new debt and investors - tumbled 43 percent to $141 billion in the second quarter from the first quarter's total.