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December 8, 2008

2008 Review: Credit Crisis Whacks Equities Pros

Turbulent Times

By Peter Chapman

Now everyone works for a commercial bank.

In the past, whenever a commercial bank took over a hard charging, risk-taking, entrepreneurial investment bank, its traders complained bitterly about stifling bureaucracy and overly cautious overlords. Many departed for other firms. Others stayed and grumbled.

Think Bank of America buying Montgomery Securities. Chase Manhattan buying Hambrecht & Quist. Deutsche Bank buying Alex. Brown & Sons.

There's very little grumbling these days over the cultural chasm. Following this year's financial meltdown, the commercial banks are the only game in town. Of the five major independent banks operating at the beginning of the year, none is an independent investment bank today.

Goldman Sachs and Morgan Stanley retained their independence, but as bank holding companies. Lehman Brothers is mostly still standing, but as a part of a large bank holding company. Bear Stearns is gone. Merrill Lynch is now part of the Bank of America fold. Traders may resent the new paradigm, but the alternative is unemployment.

On the surface, the news isn't that bad. Goldman and Morgan Stanley are still standing. Barclays Capital absorbed Lehman Brothers' U.S. equity trading operation in its entirety when the British bank took in about 10,000 of Lehman's total staff. Bear Stearns' equity traders did not join JPMorgan in large numbers, but many found jobs elsewhere.

The news is less heartening when it comes to Banc of America Securities and Merrill Lynch. Many in equity trading will lose their jobs. The betting is that those from the much larger Merrill Lynch will emerge as the survivors. Already, signs of a Merrill-centric organization are emerging.

John Thain, Merrill's CEO, was named to head the combined companies' investment banking, securities and wealth management groups. With him are three senior Merrill executives including Tom Montag, head of sales and trading at Merrill. At the combined company, he will head sales, trading and research. Global equities will be co-headed by Merrill execs Mike Stewart and Tom Patrick. The deal is expected to be completed by the end of the month.

Senior trading executives from Bear Stearns weren't so lucky. Ken Savio, who headed the 300-person equity trading group, did not join JPMorgan. Longtime JPMorgan trading head Jim Brett kept that job. Savio is now with BTIG, where he is co-head of global equities. Of his two lieutenants, Aldo Parcesepe retired just as Bear was collapsing. James Manfredonia found work briefly at Dahlman Rose. The firm had 30 sales traders led by Terry McCabe. Most of the traders found work at JPMorgan or elsewhere. McCabe landed at Piper Jaffray in New York.

At BarCap, the outlook for the ex-Lehman staffers, many still stunned at the swift collapse of their firm, is better. Of its 3,000 U.S. employees, BarCap only employed about 20 or so in equities. Gerald Donini, formerly head of equities at Lehman, holds the same title at BarCap. The firm's new equities operation has been in business for about two months.

Morgan Stanley, for instance, announced layoffs of 10 percent in its institutional securities group. It also plans to restructure its vaunted prime brokerage operation, which has seen a severe decline in assets. Proprietary trading is also targeted for cuts.

Those traders left standing are still not out of the woods. Their firms are bracing for a slowdown and reducing their staff numbers accordingly. Most of the majors are promising across-the-board layoffs that are unlikely to spare equity trading pros.

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