Sell Side

Merrill Cuts Back On Staff

CHICAGO - Merrill Lynch & Co. - which is being acquired by Bank of America Corp. - fired more than a dozen public finance bankers and as many as 10 sales and trading professionals this week as the brokerage firm trims its ranks amid a grim economic outlook, several sources said yesterday.

The cuts come just a few months after Merrill added about 30 bankers from the shuttered public finance group of UBS Financial Services Inc. to its existing team of about 120 bankers. The cuts affect the sales, trading, underwriting, and banking groups, sources said. The sources, however, differed on the number of layoffs. As part of the cuts, the firm closed its Pittsburgh office, leaving its one banker there at the vice president level without a job, according to sources.

One source described the cuts as more than a dozen but well below 20 and affecting mostly junior positions. But other sources said that figure included only bankers and that another 10 or so muni salespeople and traders were cut. That source also named at least one banker at the managing director level that was fired.

In other publications, the firm was reported to have cut a total of 500 jobs in fixed-income sales and trading and equities globally. Merrill chief executive officer John Thain has warned that thousands of additional cuts are expected after the sale to Bank of America closes later this year, but not in the fixed-income and commodities business groups.

"These cuts are driven by the market and do not have anything to do with the impending merger," one source said.

A Merrill representative, citing company policy, declined to comment on the layoffs and senior members of the municipal group, including its chairman John Lawlor, did not return calls yesterday to comment. Although the firm's staff has been on edge given the market turmoil, struggling economy, and looming merger, the announcement of layoffs on Wednesday caught most off guard, said one source.

Merrill recently reported a $5.15 billion third-quarter loss, its fifth consecutive quarterly loss, stemming largely from its holdings of subprime and other mortgage-backed securities. The market turmoil has also taken a toll on the firm's stock-trading results.

The announcement in mid-September of the 94-year-old Merrill's sale to Bank of America in a $50 billion stock deal coincided with news of Lehman Brothers' bankruptcy. The dual shock marked the most dramatic event in the nation's financial crisis. The news followed Bear, Stearns & Co.'s collapse and acquisition by JPMorgan and UBS' exit from municipals.

Merrill's Thain, who will serve as president of the combined firms, said additional cuts would come from overlapping functions in infrastructure areas such as information technology, finance, and operations, and not the fixed-income or commodities divisions.

Bank of America has a reputation for aggressive cuts following acquisitions, said Ladenburg Thalmann Inc. analyst Dick Bove. He expects a minimum of 10,000 people are likely to lose their jobs.

"Bank of America's 'slash and burn' style following acquisitions is likely to be pronounced at Merrill," Bove wrote. "That company still has approximately $30 billion in securities that could be written down. It overlaps with Bank of America in multiple divisions."

The combination will also likely mean a further reduction in the amount of underwriting capacity available in the municipal market, even if no additional municipal cuts are made. Many banks have reduced the portion of their balance sheet dedicated to the muni business, as others have exited the market.

Merrill is not alone among financial firms trimming staff due to the market turmoil and economic recession. Goldman Sachs Group Inc. plans to cut 10% of its workforce, or 3,200 employees, news reports have said. In addition, Barclays PLC president Robert Diamond has said he expects 3,000 layoffs as he integrates the recently acquired North American investment banking and capital market units of Lehman Brothers into his firm.

But some firms in the municipal market are benefiting from the turmoil on Wall Street. Troubles at the big banks have made talent and opportunities available for regional and other smaller investment banks. Merrill just four months ago counted itself among those that were benefitting from the troubles at other firms with the hiring of bankers from UBS. The move took advantage of what Lawlor called in a June interview a "once-in-a-decade opportunity."

Merrill operates public finance offices in Atlanta, Boston, Chicago, Dallas, Florida, Houston, Los Angeles, New York City, Philadelphia, San Francisco, and Seattle. Nationally, Merrill has held the top spot as an underwriter of competitive bond sales for the last 12 years.

Since 2004, Merrill ranks fourth and Banc of America eighth among senior managers on all issuance, according to Thomson Reuters. On competitive deals, Merrill was first, and Banc of America eighth. On negotiated deals, Merrill ranked fifth and Banc of America ninth. The firms' strengths vary by sector. In education, Merrill ranked fifth and Banc of America eighth. Merrill ranked fourth on electric power and Banc of America fifth. On environmental deals, Merrill ranked eighth, and Banc of America ranked fifth. On general purpose bond transactions, Merrill ranked second and Banc of America eighth.

In health care, Merrill ranked third and Banc of America eighth. In the housing sector, Merrill ranked second and Banc of America ranked 10th. Banc of America ranked third, and Merrill 10th in public facilities. In the transportation sector, Merrill ranked fourth and Banc of America seventh. In utilities, Merrill ranked fourth and Banc of America, seventh. In the development sector, Banc of America ranked first and Merrill eighth.


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