The Bear Prowls the Street - Industry Trend or Event

First the Nasdaq, then the Dow: The sell-off that began with the collapse of the Internet stock bubble may be spreading into ironclad blue chips. How long will the downturn last? Find out by watching for layoffs at Wall Street firms.

As a rule, investment banks and retail brokerages are quick to cut jobs when they see a painful market ahead. Until recently that hasn't happened because many expected more-conservative, large-cap stocks to offer a safety net. But in recent weeks, the bear has started mauling those stocks, too, sending the Dow as low as 9106 last Thursday, down 24 percent from its January 2000 high.

Such widespread selling portends a longer, colder economic downturn than most securities firms had planned for. And now many firms are reassessing their outlook. "We won't see a robust turnaround until next year," says Michael Boublik, a managing director of Morgan Stanley Dean Witter in New York.

Last week, discount brokerage Charles Schwab announced plans to lay off between 11 percent and 13 percent of its workforce, or between 2,700 and 3,400 employees. Schwab had hoped to avoid layoffs by mandating a pay cut for its officers and offering employees a voluntary four-day workweek.

Most big banks aren't trawling out pink slips yet, but it's expected to happen if business doesn't pick up. Not only are brokerages hurt by the bear market's sluggish trading, but investment banks are also suffering from a drought in underwriting fees. And the rise in mergers and acquisitions that many had been looking for has yet to appear.

So far the layoffs have been slight. Bear Stearns recently announced it would cut 400 jobs. But earnings from major banks last week suggested others will need to reduce costs or watch profits deteriorate. Goldman Sachs' first-quarter profit fell 13 percent while Morgan Stanley Dean Witter's dropped 30 percent on the year. Both banks said they will keep a strict eye on costs and cut expenses on travel, entertainment, overhead and the use of outside consultants.

If more jobs cuts come, the trick will be to avoid going too far. After all, many of the jobs at risk are the result of overhiring during the bull market. Schwab, which added 6,000 jobs last year alone, wishes it could have seen the slowdown coming. "No one has a crystal ball," says a Schwab representative. "But in retrospect, it would've been nice to know."

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