NEW YORK, NOV. 6 -- Prudential-Bache Securities Inc. plans to lay off up to two-thirds of its investment banking division, sources said today, as the chairman of the Wall Street firm declared that "business stinks."
The cuts at the investment bank that touts itself in ads as "rock solid, market wise" are the latest in the securities industry's devastating recession that has reduced employment by more than 45,000 jobs since 1987.
Meanwhile, the owners of struggling CS First Boston Inc. reportedly will buy a large portion of the firm's $1.1 billion in temporary loans to clients, made unsellable by the collapse of the junk bond market.
Prudential-Bache, a unit of Prudential Insurance Co. of America, confirmed it was abandoning a four-year effort to become an investment banking power, drastically reducing the size and focus of the division. In a statement, Prudential-Bache did not specify the size of the cuts, but sources at the firm who spoke on condition of anonymity said about 120 of 180 investment banking professionals would be laid off. Additionally, an undetermined number of the division's 100 support personnel are to be cut.
Other Wall Street firms recently also have slashed staff working with investment banking, the lucrative growth area of the 1980s that involves financing mergers and acquisitions and raising capital for companies.
Industry powerhouse Morgan Stanley & Co. last week said it was reducing its investment banking force by 6 percent. Shearson Lehman Brothers Inc. and PaineWebber Inc. also recently laid off investment bankers and First Boston is expected to make layoffs in coming weeks.
Employment industry-wide has dived 17 percent to 216,000 at the end of June from 262,000 in October 1987. The reductions place the industry at 1985 levels, still about 55 percent above total employment in 1980.
Prudential-Bache Chairman George Ball said in a memo to employees last week that slumping business "argues for a smaller, leaner crew moving forward" that will focus on specific industries where the firm has succeeded in the past. He said the investment banking division lost money last year and thus far in 1990.
Ball blamed the problems partly on the division's lack of an established client base. With business down across the board, firms with long-standing clients are more likely to survive the industry's recession.
"Solid investment banking deals continue to be scarcer than a lizard's smile," Ball said in another recent memo. "The fault isn't our bankers'; it's environmental."
He said the overall industry is no better, as individual investors and money management institutions are afraid to commit money. "Business stinks," Ball said.
Prudential-Bache in 1986 decided to spend more than $110 million to strengthen its investment banking force to expand on its power as a retail brokerage catering to individual investors. But beset with declining mergers and underwriting, as well as reduced stock trading activity, the firm lost $51 million last year.
Cuts at the firm also are expected in other divisions.