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News > Companies
Merrill Lynch slashes staff
October 13, 1998: 8:26 p.m. ET

Work force cut by 3,400, or 5%, as firm posts net loss for third quarter
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NEW YORK (CNNfn) - Merrill Lynch & Co. is cutting 3,400 employees and 900 freelance workers as part of an effort to hold down costs amid global economic turmoil, the nation's largest brokerage firm said Tuesday.
     In addition, the investment firm reported lower-than-expected profits from operations for the third quarter, a period that most on Wall Street hope to forget.
     Merrill's stock (MER) closed up 1-1/16 at 44-15/16 Tuesday on the New York Stock Exchange.
     Merrill Lynch said the layoffs represent about 5 percent of its global work force. The company also plans to reduce its headcount through attrition, but did not specify which geographic regions or departments will be affected.
     David Komansky, Merrill Lynch's chairman and chief executive officer, said Tuesday the work force reduction reflected "a very fundamental change" in the short-term business environment.
     "If we look at our revenue opportunities 12 to 18 months out, we think they will be significantly different from what they are or have been in the past 18 months," Komansky told CNN's "Moneyline News Hour with Lou Dobbs".
     Komansky said it was still "hard to tell," given the turmoil roiling the market, whether additional cuts may become necessary. But he suggested Tuesday's work force reductions marked an attempt to minimize losses.
     "We hope that we got ahead of the curve," he said. "…Clearly we couldn't afford to be in a state of denial and we tried to move as aggressively as we could."
    
Overexposure takes its toll

     Like many other investment banks, Merrill Lynch's trading operations have been hard hit, particularly in the emerging markets, where overexposure has taken its toll in recent weeks.
     During the quarter, Russia devalued its currency and Japan's recession continued to worsen. On top of those events, Wall Street also has had to contend with trading disasters such as the near-collapse of Long-Term Capital Management.
     LTCM narrowly averted bankruptcy last month thanks to a $3.6 billion bailout orchestrated by the Federal Reserve Bank of New York and financed by 14 of Wall Street's leading bank and brokerage firms, including Merrill Lynch.
     Komansky and Merrill Lynch had personal investments in LTCM, a fact that has raised the hackles of some critics who have questioned his and the firm's motivations.
     On Tuesday, Komansky insisted he backed the rescue package for the simple reason that he feared the consequences of an LTCM collapse.
     "We felt the alternative to letting LTCM fail was chaos in the markets … something we didn't think was acceptable as a group," he said.
     Merrill Lynch reported a profit of $124 million, or 28 cents a share, before extraordinary items, compared with $502 million, or $1.24, a year earlier.
     Analysts had a consensus estimate -- which already had been ratcheted downward on the securities industry's worsening outlook -- for an operating profit of 45 cents a share, according to First Call, which tracks Wall Street analysts' reports.
     Including one-time items, Merrill Lynch reported a net loss of $164 million, or 42 cents a share. It's the first time Merrill posted a loss since the fourth quarter of 1989, when it went into the red after taking a restructuring charge.
     The company recorded a $288 million charge for severance costs in the third quarter. Merrill Lynch disclosed on Oct. 1 that it had a net exposure to all hedge funds totaling $84 million. It also announced last month that trading losses in emerging markets would slice an estimated $135 million from its profits.
     Revenue fell to $3.8 billion from $4.1 billion.
     For the latest nine months, net income totaled $915 million, or $2.18 a share, on revenue of $27.7 billion.
     The job cuts mark a sharp reversal from just three months ago, when brokerages were ringing up record profits and hiring people in droves because of a strong U.S. stock market, record stock and debt offerings, and a flood of corporate merger deals.
     In fact, the securities industry employed a record 663,400 people across the nation in August, up 10 percent from a year ago.
     Komansky predicted Tuesday the markets could work their way down to a bottom range of around 7,000 on the Dow Jones, before beginning to build up again.
     Asserting that swings in the market are a reality of life on Wall Street, he added that "we remain very bullish on America over the long term."Back to top
     -- from staff and wire reports

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.