Wall Street Braces for Huge Job Losses
In the Wake of Lehman's Bankruptcy and Merrill Lynch's Sale, Tens of Thousands of Jobs Expected to Be Lost
By ALICE GOMSTYN
ABC NEWS Business Unit
Sept. 16, 2008 —
On the day that two investment banks bid a historic goodbye to Wall Street, employees at one of the firms were treated to some inescapable irony: Just feet away from the Manhattan headquarters of Merrill Lynch, a luxury car exhibition had set up shop in the New York Financial Center's Winter Garden.
As they headed into work Monday morning, some Merrill employees saw their faces reflected in the windows of Rolls Royces and Jaguars.
"Can you believe it?" one Merrill employee asked. The cars, she said, are now symbols of what Wall Street used to represent: wealth and success.
Between the bankruptcy filing of Lehman Brothers – once the country's fourth-largest brokerage firm – and the announcement that Merrill Lynch, the world's largest brokerage firm, was being sold to Bank of America, Wall Street recruiters this year expect to see tens of thousands of new job losses in the financial sector and cuts in compensation.
"It's going to be devastating," said Karen DelPrete, a managing director of the executive search firm Gilbert Tweed Associates, Inc. "I think it's going to displace a great number of people."
Executive search consultants say that the financial sector has already lost at least 110,000 jobs since the start of the year. Kevin Becker, an associate partner at the executive search firm Lucas Group, said his company is forecasting that at least 60,000 more financial sector jobs will be cut by the end of 2008.
The Lehman bankruptcy and the Merrill deal, he said, "clearly will have a dramatic impact."
But life at the two unwinding investment banks may be less than dramatic, at least for now.
At Merrill Lynch, a number of employees were grateful for the Bank of America deal. Some felt that the Bank of America purchase may help limit the number of layoffs the ailing investment bank might have to endure, a person familiar with the situation at Merrill said.
Merrill employees with investments in their company, he said, were also cheered by the fact that Bank of America had agreed to purchase Merrill at about $29 a share. Last Friday, at one point Merrill shares fell below $17.
Workers Face Economic Stress
"Considering where the stock was on Friday, this was a pretty good deal," he said.
At Lehman, meanwhile, the company's stock price continued to drop precipitously – down to about 19 cents by the close of the New York Stock Exchange on Monday -- and employees there, said Douglas Baird, a bankruptcy law professor at the University of Chicago Law School, have little recourse to save their investments.
It will generally be difficult for shareholders and employees to sue to recover money they lost when Lehman's stock dropped, absent the kind of fraud or malfeasance seen in the collapse of the energy firm Enron, he said.
"It's not like Enron where they were hiding all kinds of transactions. Lehman was perfectly open about what it was doing," he said.
All 26,000 of Lehman's employees are likely to eventually lose their jobs, but at least some workers there seemed to be taking that in stride. One Lehman analyst who declined to be named said that he and those around him were in relatively good spirits. "Hanging around," "chatting" and engaging in "gallows humor" seemed to be the order of the day, he said.
"Obviously a company filing for bankruptcy like this is unprecedented, but people understand this is a volatile business and there's a willingness to take that risk among the people who pursue these jobs," he said. "It really just kind of goes with the territory."
He said that, for now, Lehman employees are being asked to continue coming into work unless instructed otherwise. But, he said, that hasn't stopped some people from packing up family photos and other keepsakes they had kept on their desks -- a precaution they're taking, he said, in case they're locked out of the building at some point -- and starting to look for new employment.
"There's no harm in people shopping around already," he said.
Two other Lehman employees standing outside the building today said they were optimistic about finding new jobs.
DelPrete said that at both Merrill Lynch and Lehman Brothers, investment bankers who have been key to putting together banking deals can expect good job prospects. While Bank of America, she said, will likely hire on Merrill's top bankers, small investment banks and growing foreign banks such as MacQuarie of Australia and the Royal Bank of Canada will also take an interest in recruiting Merrill and Lehman bankers.
Employees Look to New Jobs
Becker said that Fortune 500 companies will also try to lure top bankers to their in-house investment units.
But DelPrete and Becker agreed that support staff such as secretaries could have the hardest time finding new work.
Other lower-paid workers may also soon be hurting. DelPrete said that the restaurant and car service industries that service Lehman and Merrill Lynch will see a drop-off in business.
Becker predicted the airline industry would be affected too.
"Ultimately you have an airline industry that now depends solely on business travel," he said. With fewer business travelers, he said, the industry will suffer further.
While New York City -- home to both Merrill and Lehman's headquarters -- will see its economy impacted the most by the financial sector job losses, Mayor Michael Bloomberg said that the city would remain in relatively good shape.
The "vital signs of the city's economy remain strong -- a lot stronger than in much of the rest of the nation," he said during a press conference Monday afternoon.
"New Yorkers have gotten through the ups and downs of Wall Street before, and we will get through this one too," he said.
Whether the individual employees of Merrill Lynch and Lehman get through these downs, however, remains to be seen.
"I have a lot of colleagues who still work [at Lehman]" a former Lehman employee told ABC News. "I feel for them."
ABC News' Eileen Murphy, Bradley Blackburn and Scott Michels contributed to this report.