Die-hard tech investors aren't the only ones crossing their fingers for a screaming stock market rally, it seems.
Wall Street's big investment firms are talking up the prospect of a big second-half pickup, too. That would pass for standard-issue optimism if it weren't for the fact that Wall Street desperately needs business to bounce back if it is to avoid a wave of new layoffs, observers say.
Profits have plunged steadily at the big banking and brokerage firms since the
hit 5000 two years ago. Since then, the companies have turned their focus to cost containment while maintaining that they plan to avoid additional mass firings.
Yet even after some 30,000 jobs have been shed the past 18 months, overall employment in the securities industry remains near its 1999 peak. That's why some observers say more layoffs, whether announced or done stealthily, are all but inevitable if the industry is to resume solid profit growth.
"These firms are going to come to the conclusion that even with a reasonable recovery ... they may still be overstaffed," says Guy Moszkowski, a brokerage analyst with Citigroup's Salomon Smith Barney. "Personnel is the biggest item to make cuts in."
The evidence that sobering reality may be starting to set in came by way of Europe on Wednesday, with news that
may be considering slashing overseas investment banking jobs because of a slowdown in merger-and-acquisition work. Merrill, which already has eliminated 14,600 jobs, or 20% of its workforce, wouldn't confirm the
report but issued a statement saying: "We continue actively to manage our resources, including expenses and head count."
Indeed, Wall Street executives keep waiting for a rebound in retail stock trading and investment banking activity -- especially corporate dealmaking -- to save the day. But there's scant evidence that either of those two things is about to happen anytime soon.
The most recent vital signs for the securities business are decidedly grim. For instance, stock trading at
, the nation's biggest discount brokerage, continues to fall. Schwab says trading activity dropped another 6% on a month-to-month basis and is down 18% from a year ago. Slack interest in trading stocks is a big reason why
, the big market-maker firm, warned Wednesday that it would report a quarterly loss and announced it had shed 10% of its workforce.
Investment banks, meanwhile, are experiencing one of the worst droughts for corporate advisory work in seven years. Thomson Financial Securities Data says the $201 billion in U.S. corporate deals announced in the first half of this year is the lowest level of transaction work since the $192 billion in deals recorded during the first six months of 1995.
And events like last week's mega-accounting debacle at
certainly won't help jump-start Wall Street's revenue machine. Coming in the wake of earlier accounting scandals at
, investor confidence continues to slide, pushing the broader stock market lower.
Now it's true that officials at
, in separate conference calls last month, each said they saw a more favorable climate for corporate mergers in the second half of the year, based on the "chatter" they've been hearing from corporate leaders.
But as the old saying goes, talk is cheap. And until a deal is closed, it generates no fees for Wall Street firms. Moreover, some say the era of the lucrative mega-deal may be gone, given all the accounting scandals that have plagued giant corporations. The sharp 63% slide in shares of
AOL Time Warner
this year has even got some people rethinking the wisdom of that bigger is better.
Tom Burnett, president of Merger Insight, an institutional research firm and a division of Wall Street Access, says Wall Street is kidding itself if it expects the merger-and-acquisition market to start booming again like it did in the late 1990s. "I wouldn't expect to get back there for a long while, partly because of the discredited nature of large acquirers," says Burnett.
It's for those reasons Wall Street is again abuzz with speculation about where the job ax will swing next. Last week, for instance, there were reports that Germany's Deutsche Bank may be planning to cut thousands of jobs. Industry insiders say other firms that may look to keep trimming jobs -- especially investment bankers -- are Goldman, Lehman and Credit Suisse First Boston.
There's much speculation that
J.P. Morgan Chase
, which has shed more than 8,000 jobs the past year, will announce even more layoffs. A J.P. Morgan Chase spokesman wouldn't comment. But several industry sources all used the same word to describe the nation's second-biggest commercial bank: "bloated."
But don't look for some press release heralding the latest round of layoffs on Wall Street. That's not the way Wall Street works. Unlike a big manufacturer that can't conceal a mass layoff of thousands of workers, Wall Street tries to make its cuts quietly. In some instances, employees may be given months to look for new jobs. It's a way of avoiding bad publicity and trying to make a firm's business appear healthier than it really is.
"It's very unproductive to say they are cutting," says Gary Goldstein, president of the Whitney Group, a executive recruiting firm that does business with Wall Street securities firms. "But there are cuts even as we are talking."