Sell Side

JPMorgan to Cut Up to 15% After Merger

JPMorgan will slash its public finance department by 10% to 15% as it combines operations with Bear, Stearns & Co., a source familiar with the merger said yesterday.

The leaner firm will take about 45 people from Bear into its public finance department while laying off about 70 existing JPMorgan employees for a net loss of 25 people out of approximately 170, the source said.

JPMorgan closed the deal on its merger with Bear on Friday, ending the run of the 85-year-old investment bank.

Approximately 30 bankers from Bear are being kept on in the banking and origination group headed by managing director Mark Melio. JPMorgan has trimmed its staff and completed a round of layoffs last week, letting about 45 people go from that department, the source said.

Employees in the sales and trading group will be notified this week about job cuts. The ratio of people coming from Bear and being laid off from JPMorgan will be about the same as it was for the banking and origination group, the source said.

Since the merger of the two firms was announced in March, rumors have circulated that the combination would result in layoffs not just at Bear but at JPMorgan as well.

JPMorgan spokesman Brian Marchiony in a statement said the firm is "extremely pleased" with the Bear Stearns integration. "We know that we are in a much better position to serve our issuer clients given our combined talent, capabilities, and culture," he said.

One market source that has worked with both banks said combining the two groups would strengthen the bank's service.

"These kinds of things have a lot of pain involved in them but I think JP's position is going to be stronger with us," the source said. "Just because they're keeping some bankers on board and some staff on board that we're familiar with."

However, other issuers have said that the disruption caused by the staff changes could be a problem for them going forward if the bankers that they know and trust are out of jobs. This would leave an issuer to either proceed with its financing without the banker with whom it has a relationship, or wait until that banker finds a new job and then set up an agreement with the new firm.

The downsizing comes as many financial firms have either cut back staff or announced cutbacks amid the credit crunch and multibillion-dollar writedowns at investment banks. New York City comptroller William Thompson has estimated that the city's financial sector will lose between 15,000 and 25,000 jobs between August 2007 and March 2009.

JPMorgan was the sixth-ranked investment bank in terms of senior managing bond deals nationwide last year with $25.51 billion of deals, according to Thomson Reuters data. Bear Stearns ranked eighth, with $24.75 billion.

JPMorgan tended to rank ahead of Bear in issuance for individual sectors such as education, utilities, and transportation in 2007. But Bear far outranked JPMorgan in general purpose financing, serving as senior manager on $12.54 billion of bond deals compared to $3.08 billion. Bear was also much more established in housing, senior managing $2.39 billion of deals compared to $357.5 million.

As the cutbacks continue, questions about where the employees - from these firms as well as UBS Securities LLC, which announced it was exiting the municipal market - may end up remain unanswered.

In some cases, other firms in the top 25 of the market's busiest are poised to pick up the slack.

"Anytime there is change in the industry we look to expand our public finance banking, sales, and trading platform," said Brad Winges, head of sales and trading for Piper Jaffray & Co. "There continues to be more change in the industry so we are obviously always looking for talented personnel that match our platform."

Jonathan Nordstrom, head of underwriting, sales, and trading at Morgan Keegan & Co., said his firm was also looking to hire bankers displaced by the recent moves.

"We are interviewing a good group of people in the New York area," Nordstrom said. "The opportunity to hire outstanding people is unprecedented in my opinion."

Nordstrom said that while Morgan Keegan has not yet hired anyone, he is looking to add staff across the board in underwriting, sales, and trading. He said that with the departure of both Bear Stearns and UBS from the market, Morgan Keegan will look to add market share and move into the top 10 in rankings among senior managers.

Another market participant said that layoffs in the industry were creating a buyer's market for banks looking to make new hires. The source said his firm had spoken to people at Bear Stearns and UBS but had not made any hires.

"We are definitely talking to people," the person said.

Raymond James & Associates Inc. is also looking to add some of the recently displaced bankers, said Frank McKenna, managing director and head of the northeast region for Raymond James.

And yesterday, PNC Capital Markets LLC, which yesterday announced hiring unrelated to the JPMorgan or UBS actions, said it might be interested in making additional hires given the talent available in the marketplace, according to Thomas Henson, head of the public finance team for PNC.

However, the growing pool of seasoned bankers looking for work was nothing to celebrate, said one person.

"None of us are feeling good about any of this - it's a sad time," the source said. "Particularly for the individuals involved, it's just a very difficult and painful time and so nobody's sort of gleefully saying, 'I'm so glad our competitor is having this problem so we can sit back and cherry pick.'"

But one market source said that bankers coming out of large investment banks may not be too keen to join smaller, regional banks that have fewer resources and fewer opportunities.

"A lot of these folks coming out of the bigger firms, I think their first preference is to get a platform similar to the one they left," the source said. "The problem is, there aren't as many platforms like that available."

Making sure that someone coming from a larger bank was compatible with a smaller firm's culture and business objectives was essential, the source said.

"Some of these bankers, especially product specialists, their purview is national and they wouldn't be too happy about being with a regional firm where they might be confined to four, five, or six states where they're used to dealing with people all over the country," the source said.


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