CHICAGO — Fitch Ratings last week announced plans to eliminate 150 positions company wide during its current fiscal year to compensate for declining revenues largely from its structured finance business — a move that claimed senior Chicago-based analyst Joseph O’Keefe, sources said.
The cuts, which are expected to be achieved through a mix of layoffs and attrition, were announced in an earnings release Wednesday, but a firm representative Friday said he could not provide any additional details about the cuts.
Public finance group managing director Michael Belsky did not return a call to comment on the announcement’s effect on public finance.
Fitch employees learned of the planned cutbacks in an e-mail late last week from Fitch Group chief executive officer Stephen Joynt that included the earnings information for the last quarter and a gloomy outlook for the remainder of the firm’s fiscal year that runs through September.
Public finance employees were not told who within their group were cut at a meeting on Friday, but numerous sources said the firm laid O’Keefe off late Thursday and that several other analysts were included in the list of those whose jobs were being eliminated, although that could not be confirmed. The move stunned many, as the most recent speculation was that layoffs might be limited to the structured finance group. The layoffs included 12 senior directors company wide, sources said.
The layoffs in public finance come even as that group was not considered a trouble area amid the larger capital markets business. The Fitch earnings report noted a 9.1% drop in revenues to $202.1 million for the last quarter from $222.3 million a year earlier but attributed it primarily to struggles in the structured finance arena that includes analysts of U.S. mortgage securities and global collateralized debt obligations.
The collapse of the subprime market has chilled interest in those products — resulting in $100 billion in losses for banks and investors and prompting rating reviews and downgrades of insurers that carried exposure to subprime securities. The corporate finance business that includes public finance ratings, however, “continued to grow,” according to the earnings report.
The firm now expects revenues for the current fiscal year to decline by 10% to 15%. “Given this perspective, Fitch Ratings is cautiously managing all costs,” the release read. “In particular, it anticipates having a reduced headcount by 150, or roughly 7% of total employees, at fiscal year-end September 2008. In addition, action has been taken to reduce variable compensation expenses.”
In an e-mail to employees, Joynt targeted structured finance as the main source of the firm’s lagging revenues and wrote that it was now “apparent there won’t be a quick recovery.” Other efforts to trim costs will likely impact bonus and compensation packages. The firm will eliminate some positions, but will continue to do some hiring in key sectors and geographic regions with the goal over the fiscal year of achieving a “stable platform from which to move forward.”
Local members of the public finance community were surprised by the news that Fitch would part ways with such a well-respected veteran of public finance ratings, well-known to most of the Midwest’s local issuers.
O’Keefe, who covers municipalities, relocated to Chicago from New York City to help Standard & Poor’s open an office in 1994. Fitch recruited him to join the firm’s Chicago office as its first analyst. The group here has grown to include several local government analysts, and airport and health care credit analysts. He most recently served as a senior director in the tax-supported group and last year was named as an advisor to the Government Finance Officers Association’s debt committee.
Local issuers praised O’Keefe for his knowledge and fairness. “The issuer community and the city of Minneapolis are sad to lose Joe O’Keefe. Joe is one of the few in the credit analysis business who can focus on critically important financial and economic trends and put short term trends in proper perspective,” said Minneapolis’ chief financial officer Patrick Born, who has long known O’Keefe and is chair of the debt committee.
“Joe is well-respected and well-liked and his opinion is sought after. He always put us through a good grilling, but is fair,” said the Illinois Regional Transportation Authority’s chief financial officer Joe Costell. “Fitch didn’t do itself any favors by letting Joe go.”
O’Keefe was not in his office Friday and could not be reached to comment.
O’Keefe’s firing came as the tax-supported group also yesterday announced the recent hiring of Ann Flynn from RBC Capital Markets where she was co-head of the New York tax-backed group and leader of the New England tax-backed group. She is based in New York City and will report to managing director Amy Laskey.
Several sources said they heard reports that other analysts may have been cut, but had no names. Three members of the public finance support staff were also cut. Fitch maintains public finance offices in New York City, Austin, Chicago, San Francisco, Tampa, and Washington, D.C.