NEW YORK (AP) – Battered by the subprime mortgage crisis, Bear Stearns Cos. on Wednesday cut 4 percent of its staff in a move that could prelude a final push by investment banks to cull their ranks before bonuses are handed out.
The nation's fifth-biggest investment bank will cut 650 jobs in all departments from its staff of about 15,500. This marks the third wave of layoffs to sweep through Bear Stearns, which as of last month eliminated about 900 positions.
Bear Stearns has been among the hardest hit on Wall Street as investment banks reel from deterioration in the subprime mortgage and leveraged loan markets. U.S. banks and financial service companies are cutting tens of thousands of jobs in an attempt to lower costs and trim underperforming businesses.
The investment bank's decision to cut jobs with the end of the year just weeks away also spreads worry on Wall Street that other firms will do the same. Year-end bonuses represent a large part of compensation for everyone from support staff to investment banks, and eliminating those payments could free up a significant amount of money.
“They are cutting overhead and shoring up positions for next year,” said Christopher W. Hunt, whose Stamford-based firm Hunt-Scanlon conducts market research for the executive search industry. “Many people have bonuses guaranteed, but many firms would indeed save on all the other bonuses.”
He said Wall Street firms that are trying trim expenses, and slim down before beginning a new year, often use this tactic. Typically, though, only back-office staff such as assistants and secretaries, who aren't guaranteed the kind of blockbuster bonuses reaped by investment bankers and traders, get laid off at this time of year.
The round of earnings warnings and layoffs at Wall Street investment banks likely means bonuses will decline this year, or will be paid out using stock instead of cash to retain key employees. The New York State Comptroller's office said in a report earlier this month that bonuses are likely to shrink 10 percent from the record levels reached a year ago, when they hit $23.9 billion, or more than $136,000 per employee at major U.S. financial institutions.
Bear Stearns in a memorandum distributed to employees that was obtained by The Associated Press said that the latest cuts are part of an ongoing review “to best position Bear Stearns for 2008 and beyond.” Employees affected would get severance, benefits and outplacement services, the memorandum said.
Russell Sherman, a spokesman for Bear Stearns, said the jobs cuts would come from across the firm and were not restricted to one particular business.
In October, Bear Stearns cut 300 jobs from areas including its equity trading business. The company, which is the nation's second-biggest underwriter of mortgage bonds, also slashed about 600 positions from its mortgage-origination unit.
Further pain might also lay ahead for Bear Stearns, which earlier this month said it would writedown another $1.2 billion linked to its mortgage-backed securities business. The biggest global investment houses and major banks collectively wrote down some $80 billion worth of assets because of the market crisis this summer.
This puts even more pressure on Chief Executive James Cayne, whose leadership has been under scrutiny since Bear Stearns announced the collapse of two hedge funds in July. Rival Merrill Lynch & Co. ousted CEO Stan O'Neal earlier this month, and Citigroup Inc. did the same to CEO Chuck Prince a week later.
Cayne, who owns about 4 percent of Bear Stearns, has refused to relinquish control of the struggling firm. Instead, he pushed out former president Warren Spector in August. Spector did not receive a severance, but was allowed to keep stock and option awards worth about $23 million, according to a regulatory filing.
Shares of Bear Stearns rose $4.07, or 4.3 percent, to close at $99.50 on a day when share prices in general rose sharply after a Federal Reserve official hinted that the central bank may lower interest rates again.