While J.P. Morgan & Co. is not the biggest or most powerful U.S. commercial bank, it has always stood apart from its brethren, with a reputation as perhaps the classiest financial institution in America. A hallmark of its culture has been its maternalistic treatment of its employees. (Some used to nickname it Mother Morgan.) While other banks regularly trimmed large chunks of their workforces in bad times, Morgan always resisted.
Until now. Morgan is currently gearing up for its first widespread layoffs ever. BUSINESS WEEK has obtained a Jan. 24 internal memorandum from Chairman and CEO Douglas A. Warner III to "All Morgan colleagues" that outlines the bank's plans to cut back due to "difficult" market conditions. Warner says the bank is planning to slow down its expense growth and that staff cuts will ensue. "We have not set a target for staff reductions across the board," the memo says, with the "not" underlined for emphasis. But "since two-thirds of our costs are for people, each business expects to some extent to trim staff."
LITTLE LISTS. However nonspecific Warner's memo is, bank sources say the drive to cut costs is intense. Over the past decade, Morgan has hired thousands of people to help it become a major player in investment-banking businesses such as securities underwriting and trading. But now Morgan, like its competitors, is facing a slowdown in those businesses. As a result, at meetings during the second half of January, sources say, several dozen top Morgan executives were asked to prepare lists of people they could lose if necessary. Resulting cuts are expected to be completed during the first half of 1995. Talk inside the bank is that parts of Morgan will face staff cuts of 10% or more. A bank spokesman declines to comment on any specifics of the planned cutbacks.
Morgan has plenty of company in its drive to reduce costs and payrolls. Investment banks, for example, are at least as vulnerable to poor capital-market conditions. Among investment banks, Merrill Lynch & Co. could eventually lay off close to 500 employees. CS First Boston has announced plans to let roughly 300 employees go worldwide. Even Goldman, Sachs & Co. has embarked on a program to reduce staff by 10%.
Commercial banks are also eliminating jobs. Last December, for example, Chemical Banking Corp. announced plans to abolish 3,700 positions. Chase Manhattan Corp. is another money-center bank cutting back, offering voluntary retirement to roughly 2,600 employees. For many regional banks, sluggish demand for core products such as mortgages and a need to boost efficiency are prompting similar reviews of staffing levels. Fleet Financial, Corestates Financial, and KeyCorp have all hired consultants to help them reduce costs and possibly cut staff. Even foreign banks in the U.S. are pruning: National Westminster Bank has announced it will slash 500 jobs in the U.S. because it expects lower revenues.
FREE LUNCH. Still, even with other financial institutions tightening their belts, it is a departure for Morgan to initiate such a widespread cost-cutting drive. The bank has long been regarded as an employer that takes superb care of its people--Morgan employees get a free lunch every day--and one that, more than most banks, holds on to employees through good markets and bad. As Morgan has reshaped itself over the past several years into more of a global investment bank, it has hired experienced outsiders, a sharp change from its longstanding practice of employing people for the long haul and promoting from within. Many employees say it has held on to much of its old ethos, although a bank spokesman says the culture has evolved over the past decade. But bankwide layoffs could wrench whatever remains of that culture.
To be sure, Morgan has reduced its workforce before. In 1989 and 1990, the bank embarked on a cost-cutting drive that resulted in a 9% reduction in employees in 1990. But most of those cuts were accomplished through attrition. "We've never ever had real layoffs," says one employee. Moreover, since 1990, Morgan has steadily expanded its workforce (chart). Its worldwide staff increased 12% in 1994, even as net income dropped by nearly 30%, from $1.7 billion to $1.2 billion. "They've been adding people all year long, but their revenues are falling apart," says David S. Berry, director of research at investment bank Keefe, Bruyette & Woods Inc.
Morgan's cutbacks, like those at many other firms, are probably a prudent response to difficult market conditions that will likely last for some time. But the need to retrench also is doubtless a painful reminder that even the best banks are no match for market cycles.
By Kelley Holland in New York