CHICAGO - Merrill Lynch & Co. cut 29 staff members, mostly bankers, on Wednesday, shutting down its public finance banking units in the Midwest and the South and restricting the firm's sector focus.
The layoffs include Michael Lexton, co-head of public finance, according to sources. Lexton has been replaced with Robert Barber. Lexton had just been promoted to that position last August, following the departure of Matthew Deane, according to sources.
Edward C. Malmstrom, who had been co-head of public finance, as well as head of the health care division, will remain in those same two positions, sources said.
One market participant said that he is not surprised that another big player in municipal finance is backing away from the business. "Somebody has to make this decision," said the source. "The spreads have gone too low. The cost structures can't support this."
Declining profit margins in the public finance business have been blamed for other major departures in the past year, including Wachovia Securities Inc. and Prudential Securities Inc. First Union Corp. downsized their public finance business last summer.
Once the national leader in senior managing municipal bonds, Merrill Lynch has been losing underwriting market share almost every year since 1993, according to statistics from Thomson Financial Securities Data. That year the firm handled $34.8 billion of bonds and 12% of the market, according to Securities Data. The firm remained number one in 1994, but had slipped to 11% of the market. Merrill slipped into the number two spot in 1995, then to third in 1996, and to fourth in 1997. It climbed back into third 1999 and 2000.
The market that had been dominated by Merrill Lynch and Goldman Sachs & Co. is now headed by Salomon Smith Barney Inc. and UBS PaineWebber Inc.
After this restructuring, officials yesterday said Merrill plans to keep its geographic focus on the northeast and the West Coast, and restrict its sector coverage to health care, education, and housing. Coverage of other sectors and geographic areas will be phased out, according to a company spokesperson.
"After carefully reviewing our public finance business, we're taking steps to more strategically focus our personnel and resources," said a company spokesperson.
"Realigning the business in this way will, we feel, put us into a better position to pursue opportunities for growth in those areas of public finance, such as derivative solutions and the health care, education, and housing sectors," the spokesperson said. "We believe those to be most attractive."
The company will remain active in municipal trading, distribution, and syndicate businesses, and will continue to make markets in municipal securities for retail and institutional investor clients. "These businesses will not be affected by this resource realignment," the spokesperson said.
