Bear Stearns to axe 8,000 staff

* Richard Wachman
* The Observer,
* Sunday March 23 2008

More than 8,000 staff will face the axe at Bear Stearns worldwide once the stricken US investment bank is acquired by JP Morgan next month, as fears mount that the credit crunch could keep downward pressure on share prices throughout 2008.

Wall Street analysts believe well over half of Bear Stearns's employees will be made redundant, with around 600 jobs at risk in London, where the company employs 1,350 people. JP Morgan declined to comment.

So far, the credit crunch has seen relatively modest falls on the US and UK stock markets, where the Dow Jones (see graph) and FTSE 100 have declined by about 15 per cent since their high point in 2007 - more gently, so far, than during previous crises.

The worst stock-market crash was in 1929 when the Dow Jones fell by 89 per cent. The market did not return to pre-1929 levels until 1954 and was lower in July 1932 than it had been in the late 1800s.

Black Monday, 19 October 1987, saw the largest ever one-day percentage fall. Reasons cited for that meltdown included overvaluations, market psychology and automatic electronic trading strategies that exacerbated the collapse, with institutions blindly selling into a falling market.

The bursting of the dotcom bubble in 2000/2001, in its turn, marked the end of a bout of speculative buying driven by the emergence of the internet.

But are there parallels with the present crisis? Some commentators find them with the collapse of Savings and Loan associations in the US during the late Eighties and early Nineties. Lightly regulated lending institutions had to be rescued via an American taxpayer bail-out that cost more than $160bn. But because the US government threw a lifeline to borrowers during the Savings and Loan crisis, some commentators suspect that banks felt encouraged to make similar high-risk lending prior to the sub-prime crisis that broke in the summer.

The jobs fall-out from the current liquidity squeeze is expected to worsen as investment banks cut costs. Senior executives of JP Morgan met Bear Stearns staff last week to outline severance terms while at the same time highlighting generous incentives to employees they want to retain, in a move designed to prevent them being poached by rival banks.

Faced by a sudden run on its deposits nine days ago, Bear Stearns agreed to a takeover by JP Morgan, backed by the Fed, which promised to provide $30bn of emergency financing.

Job losses at Bear Stearns are just the thin end of the wedge, as experts warn that redundancies across the global financial services industry are rocketing. The Experian research agency predicts that the total tally in 2008 could hit 180,000.

In New York alone, 12,700 jobs have already been lost this year, primarily in mortgage-related work as the US housing market nosedives.

Citigroup says it expects to lay off a further 2,000 people in addition to the 4,200 it announced in January.