City brokers braced for savage job cuts

CITY BROKERS are expecting heavy job cuts because of the slump in trading. More than 3,000 brokers face the axe if London follows Wall Street, where analysts are predicting 20,000 sales people and analysts may lose their jobs.

Lehman Brothers started the process on Wall Street last week when it fired 100 of its 300 domestic sales staff. The move followed poor second-quarter results from the member firms of the New York Stock Exchange, showing revenues down and costs rising.

Wall Street firms, which together earned pre-tax profits of dollars 2.4bn ( pounds 1.6bn) in the second quarter of last year, slumped to losses of dollars 622m between April and June this year. London firms have also seen revenues plunge, and although they are cushioned from some of the downturn by international business they are also in the red, say top City brokers. 'The lay-offs have only just begun on Wall Street,' said Michael Flanagan, who follows the securities industry for Lipper Analytical in New York. 'We are starting to see the other side of the cycle. Over the next six months between 10,000 and 20,000 people will lose their jobs,' More than 250,000 people are employed in the industry.

'Conditions appear to be similar in London. So it would seem likely that you can translate what is going on in Wall Street to the City,' he adds. That would suggest around 3,000 redundancies.

Volumes in London have been steadily falling from their high in January, when the value of shares traded averaged almost pounds 2bn each day. In May, June and July it fell to around pounds 1.2bn daily.

Furthermore, the number of bargains has slumped from a peak of near 50,000 a day in January to under 26,000 in the past three months.

'There has always been a theory that London needs around 27,000 bargains a day to break even. It means that the industry is starting to hurt,' said Stuart Valentine, head of research at Proshare, the organisation set up to promote wide share ownership.

Hardest hit have been the private client operations of most stockbroking firms with the private investors deciding en masse to sit on their hands and wait for the market to show a strong trend.

'Costs are hard to keep under control and there is no increase in margins. Inevitably, if, as expected, profitability slips, people will start to focus on the cost base. The private client side, in particular, could see another shake-out,' said Peter Meinertzhagen, chairman of Hoare Govett.

On Tuesday, ShareLink, the no-frills Birmingham broker, issued a profits warning after a slump in trading activity.

'Volumes have fallen off the edge of a cliff. Clearly times are about to get rough for securities operations. However, some of the houses with significant corporate finance operations should to some extent make up for the downturn,' said Chris Smith, banking analyst at James Capel.

News that the jobs axe will once again fall in the City is alarming many brokers who had only just got over the shake-out in the last recession. Most firms are now better managed and much of the fat has been cut, which means that they may have to start closing operations.

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