Wall Street Still Reeling in Wake of Crash

NEW YORK â€”  Eighteen months after the stock market crashed and took thousands of jobs with it, Wall Street is still feeling the aftershocks.

Investor mistrust and high interest rates have triggered a recession in the securities industry, forcing a second wave of cutbacks at firms awash in profits in the mid-1980s.

Despite rising prices that have pushed many stocks to post-crash highs, securities firms have reported weak first-quarter earnings or outright losses and slashed payrolls by about 2,600 workers in the last month.

The cutbacks have pushed Wall Street layoffs to more than 25,000 since the Dow Jones industrial average plunged 508 points on Oct. 19, 1987, the largest single-day decline in New York Stock Exchange history.

“At long last, after a year of much lower levels of profitability, they realized they have to take the bulls by the horns and do something,� said Perrin Long of Lipper Analytical Services Corp. “It’s just like when you and I get a toothache, we take a day or two before we go see the dentist.�

‘Painful Retraction’

The staff reductions are blamed on slow business in all segments, from low volume on the New York Stock Exchange, to a dive in stock and bond underwriting, to declining merger activity.

They also represent what Wall Street strategists like to call a “correction�--a cousanter-reaction to a hiring frenzy from 1982 to 1987 in which securities firms expanded by 20% to 30% annually and fresh-faced business-school graduates made six-figure salaries.

“Some firms expanded a couple years ago like it was never going to end,� said Lawrence Eckenfelder, who follows Wall Street for Prudential Bache Securities Inc. in San Francisco. “There’s too much capacity, and we’re going through this painful retraction.�

Business is so bad that the Wall Street Journal, diary of the financial world, recently published a five-part series titled “Wall Street’s Recession,� illustrated by cobwebs on a street sign in lower Manhattan.

Some symptoms of Wall Street’s malaise:

Total employment by NYSE-member brokerages has fallen from a peak of 262,100 employees in September, 1987, to about 236,000 today, according to the Securities Industry Assn., a trade association of brokerages. The firms had hired more than 100,000 workers from the end of 1981 to the crash.

Average daily trading volume on the NYSE was 159 million shares in March, compared to a 1987 average of nearly 189 million shares and 1988 average of about 162 million shares.

Merger activity, an important source of business for Wall Street, has fallen to its lowest level in more than two years, according to IDD Information Services Inc., a financial reporting service.

In the first quarter of 1989, 708 deals worth $49.6 billion were completed, versus 996 deals worth $101.7 billion in the previous quarter, IDD figures show. Even discounting last year’s $25-billion RJR Nabisco Inc. buyout, the biggest takeover in history, the value of completed deals was off about 25%.

Fees generated by underwriting new issues of corporate stocks and bonds have plummeted. In the first quarter of 1989, 305 new issues generated fees of $554.7 million, less than half the 692 new issues and fees of $1.35 billion in the same 1988 period, according to Securities Data Co.

Drexel Burnham Lambert Inc. is selling its entire retail brokerage division of 2,300 workers, partly because of its bad image from an insider trading scandal but more from generally bad business. Further large cuts are expected in Drexel bond units. First Boston Corp. laid off 200 employees, Morgan Stanley & Co. dropped 30 professionals and Goldman, Sachs & Co. reportedly has let go dozens of bond traders.

Analysts forecast an additional 5,000 to 10,000 layoffs in coming months.

“We are in the midst of a very serious, chronic crisis,� Salomon Bros. Chairman John Gutfreund, whose firm lost $28 million in the first quarter, told a recent meeting sponsored by the Investment Assn. of New York.