New York, Oct. 7 (Reuters): Merrill Lynch and JP Morgan Chase & Co, two of the world’s top investment banks, faced with diminished merger and underwriting work, are preparing to cut thousands more jobs, sources familiar with the companies said on Sunday.
As Wall Street’s losses deepen, the cuts would be the latest for the global investment banking sector, which is already estimated to have shed some 60,000 jobs since the start of 2001.
Banking industry sources said JP Morgan, the second largest US banking firm, could cut as many as 3,000 workers. On September 17, JP Morgan warned that its third-quarter earnings would be well below the second quarter due to weak trading results and bad loans to telecommunications and cable firms.
A source said on Sunday that JP Morgan chief executive William Harrison had asked the management of each of the bank’s divisions some weeks ago to review their business prospects for next year and adjust staff numbers accordingly.
During a September 17 conference call announcing its earnings warning, Harrison hinted that the bank may have to cut jobs, saying “in hindsight we had too much concentration in the telecom space and did not anticipate the level of deterioration this year.”
An industry source said the latest round of JP Morgan cuts would trim the company’s 20,000 investment banking staff by 10 to 15 percent. The source said most of the cuts would hit staff in New York and Asia, adding Europe might be spared.
“Europe might get off lighter than other areas because JP Morgan has been doing well in investment banking in Europe for the first nine months of this year,” the source said. JP Morgan—whose shares tumbled to new seven-year lows on the New York Stock Exchange on Friday—is scheduled to report third-quarter results on October 16.
Meanwhile, Merrill Lynch, the biggest full-service brokerage in the United States, was also preparing further job cuts, sources said. Merrill, which currently employs more than 50,000 staff, has already cut around 15,000 workers in the past year.
“The investment banking industry is still staffed for a much higher level of activity than there is right now,” said Ray Soifer of Soifer Consulting.
“Right now the banks are going through their annual budgeting plans, which makes more job cuts no surprise,” he added.
A JP Morgan spokesman in London declined to comment on the situation, and the bank’s New York media office did not immediately return calls.
Besides a challenging investment banking environment, JP Morgan has also been tarred by financings it set up for bankrupt energy trader Enron Corp., as well as by losses in Argentina and the stock market downturn.
Sources said the bulk of the cuts at Merrill would focus on staff in New York and London. They could not provide a figure as to how many workers would be affected, but Britain’s Sunday Times newspaper said the bank might cut a further 1,000 jobs.
Asked to comment on the situation, a Merrill Lynch spokesman in London said Merrill continued to actively manage its resources, including expenses and headcount, in line with the business environment.
The impact of further Wall Street job cuts would be a blow in New York, where officials are still battling to plug the state’s finances after last year’s September 11 attacks, estimated by economists to have cost the city up to $ 95 billion. New York’s jobless rate in July stood at 7.7 per cent, above the national rate of 5.6 per cent.
On Friday, Wall Street tumbled to a sixth straight week of losses as companies piled on more negative earnings outlooks.
JP Morgan shares closed on Friday down 6.13 per cent or $ 1.08 per cent at $ 16.54, while Merrill’s stock dropped 3.43 per cent or $ 1.07 to close at $ 30.17. Year-to-date Merrill shares are off 42 per cent, while J.P. Morgan is down nearly 52 per cent.