Toomre Capital Markets LLC

Real-Time Capital Markets -- Analytics, Visualization, Event Processing, and Intelligence

Wall Street Exodus: Fear, Panic and Anger

Back in one of the items tucked into the Toomre Capital Markets LLC ("TCM") post entitled March 27, 2008 TCM Observations, TCM noted that already 20,000 financial services sector jobs had been eliminated since the start of 2008. Lars Toomre wondered what the reader's over/under number might be for the total number of Wall Street jobs that might be shed in 2008 when all of the stealth layoffs are factored in. He personally was thinking that the total reduction might be close to 100,000 this year.

On Sunday, May 25th 2008, The New York Times focused on the psychic toll the current round of layoffs is having on the many people affected in an article written by Sarah Kershaw entitled Wall Street Exodus: Fear, Panic and Anger. The article starts "The mind wraps itself around losing a job, one of life's great traumas, in jagged and swerving fits. When the call comes in, when rumor turns to reality, when it's not the broker in the next cubicle but you who is presented with a stack of severance papers, the psyche takes over. It goes numb. It goes into survival mode. Fear quickly turns into anger. For some, there may be relief in saying goodbye to what therapists call the "psychological terror" that has haunted the corridors of troubled financial institutions since last summer. But what follows — the unknown — may be no less frightening."

Apparently by the NYT's count, "Since August, banks worldwide have announced plans to eliminate as many as 65,000 jobs. Many losing their jobs now have lived through other crises on Wall Street — the 1987 market crash, the widespread layoffs of the early 1990s and the financial upheaval of 1998. But investment bankers, recruiters and psychologists say the current economic downturn, the cascade of layoffs and the steady beat of grim financial news have exacted an especially daunting psychic price."

The article goes on to discuss how surviving a round of job cuts is equally daunting and "how the emotional landscape has changed. "It's like I woke up and I'm in a different country," said a person who has worked for Merrill Lynch for more than two decades and has weathered a recent round of layoffs there. He described widespread anger, mistrust and angst at Merrill, both among those leaving and those staying. "People are reeling," he said. "The culture has turned. It is a nasty culture." Merrill Lynch laid off 20,000 people in the wake of the Sept. 11 terrorist attacks, and while many Wall Street workers say the deaths of co-workers were a shattering experience, they draw a distinction between banks' actions then and now. Merrill has laid off 4,000 employees this year. In this round, "these were self-inflicted wounds," the Merrill employee said."

"Marlin S. Potash, a Manhattan psychologist who specializes in financial issues and whose practice has been overwhelmed with new clients from Wall Street in recent months, describes the emotional reaction as "the depression of the depression," even as she acknowledges that the economy hasn't ground into a recession, let alone a depression. "This time versus other times, it feels like there are more moving parts moving faster, and more unpredictability," she said. "The lack of predictability seems to be taking a huge psychological toll." After the crash of 1987, for example, the markets stabilized quickly. And even with the financial markets gaining some ground recently, analysts say that there is underlying panic, a sense that more bloodshed lurks, that upturns are only fleeting."

Sadly Toomre Capital Markets LLC does not expect the Wall Street layoffs to end anytime soon. Wall Street is simply not making any consistent profits like it did during the 2004-2007 boom period. The leading areas of profits such as M&A, securitization, structured finance and proprietary trading are not making the consistent profits like they did in boom times when seemingly nothing would stop the profit train. As the Wall Street investment and the global commercial banks deleverage, there will be less profits and even less need for relatively bloated staff levels. Perhaps the call for a reduction of 100,000 positions in 2008 was too optimistic a call?

Time will tell, but sadly the culture of investment banking is likely to change for at least a five to ten year period. Will as many young college graduates want to come to work 12, 14 or even 16 hours a day for near minimum wages? Will more senior professionals work so many hours when there truly is a prospect of little to no bonus money at the end of the year? And just what might the reduced economic activity on Wall Street mean to the metropolitan centers of London and New York?

Perhaps there are yet even tougher times ahead? TCM hopes not. However, the case for yet tougher times can be readily made. Reader comments and thoughts are welcome.