Wall Street's pink slip parade
Job losses at Bear Stearns after the JPMorgan buyout could launch another big round of layoffs in the banking sector. And those jobs may never come back.
NEW YORK (CNNMoney.com) -- There's already been a wave of layoffs on Wall Street this year, and the Bear Stearns buyout could trigger another round of pink slips.
During the first two months of 2008, 18,000 jobs have already been lost in the hard-hit mortgage markets, according to research firm Challenger, Gray & Christmas, accounting for an overwhelming majority of the 22,000 jobs lost in the financial sector overall this year.
But analysts said Monday they expect 15,000 to 30,000 more job losses by the end of the year in the financial sector, including half of Bear Stearns' 14,000 workers following JPMorgan Chase's (JPM, Fortune 500) impending takeover of the company.
The impact on New York City, where the bulk of the finance market is based, would be sizable. Marcia Van Wagner, deputy controller for the budget for the New York City comptroller's office, expects 5,000 job cuts at Bear Stearns' New York offices alone. She added this would be only a fraction of the overall job losses in the industry.
The mortgage-backed security market, which Bear Stearns has a big presence in, will be particularly hard hit, said John Silvia, chief economist for Wachovia. Silvia said that the crisis at Bear Stearns will lead to 5,000 job losses nationwide per month over the next three or four months.
To put this in perspective, Moody's Economy.com senior economist Marissa Di Natale said that if 30,000 finance jobs are lost through the end of the year, this would be less than a third of the losses from prior financial disasters, such as the Sept. 11 attacks or the Black Monday crash of 1987.
But Silvia noted that many of these jobs were eventually added back. He doesn't think this will happen this time around since the changes to the mortgage market in the wake of the subprime meltdown have been so dramatic. "The pace of mortgage business is not coming back, so you don't need all these people," he said.
Although job cuts are likely at other investment banks, Bear Stearns is likely to suffer the worst, analysts said. David Trone, analyst for the investment bank Fox-Pitt Kelton Cochran Caronia Waller, said the worst-hit area will be Bear's fixed-income trading division. He estimates that less than a third of workers in that division will keep their jobs.
"The majority of cuts will be in fixed income because that's the troubled area," he said, adding that JPMorgan already has an established bond trading business.
Trone also said that half of Bear Stearns' investment banking and equities workers are likely to get cut. But he thinks that workers involved with trading and securitization of prime mortgages - which are loans to high-quality borrowers - will be best insulated from any layoffs.
"It's a unique and strong business that JPMorgan doesn't have much of a presence in, and they've been after it for some time," he said.
Brad Hintz, analyst for Sanford C. Bernstein, agreed, saying that he didn't think anybody in Bear's prime mortgage-related businesses would lose their jobs. But generally speaking, Hintz added that it was not a happy day at Bear Stearns.