As J.P. Morgan Chase & Co. prepares for another wave of cuts, it is becoming clear that merger integration has created an opportunity to clamp down on costs during a downturn in a way its Wall Street competitors seem reluctant to match.
Hard hit by sluggish investment banking, the company is planning to shed more executives and slash other spending in that business as revenues from securities underwriting, advising on deals, and other corporate finance activities fall short of expectations.
Departing from competitors practices and the typical pattern of integration-related cutbacks, Morgan Chase has made many of the staffing reductions in front-office positions on the trading desks and in the investment banking industry groups most affected by the slowdown. Cuts from operations and technology functions typically a big part of any bank merger are not scheduled to begin until the fourth quarter.
Diane Glossman, an analyst at UBS Warburg, said Morgan Chase and some other commercial banks, like Citigroup Inc., have been more definitive in making cuts to prepare for a longer-term slowdown in investment banking. In contrast, traditional brokerage firms like Merrill Lynch & Co. have insulated their sales forces from the brunt of reductions.
The more pure-play brokers have been reluctant to cut front-office staff, Ms. Glossman said.
That reluctance indicates at least a hope that the downturn does not have long to go, but it also indicates awareness of how morale can suffer from such cuts.
Morgan Chase has not yet put a number to its planned cuts. In July executives said they expected to cut substantially more than the 5,000 jobs they had originally planned, and since then observers have speculated that job cuts could total 8,000 to 10,000. Through the end of June, Morgan Chase said 4,366 jobs had already been eliminated, about 3,000 of them in the investment banking unit.
Morgan Chase executives have said the merger of J.P. Morgan & Co. and Chase Manhattan Corp., completed in December, actually accelerated cuts and other preparations for a market slowdown. They have also argued that it is impossible to distinguish merger-related cuts from those related to the economy.
Still, for several months executives have sounded increasingly pessimistic about the outlook for a turnaround and revived revenue growth. Instead they have been playing up their plans to cope with lost revenue-making opportunities by managing costs.
The good news is that theyre cutting costs, said Michael Mayo, an analyst at Prudential Securities. The bad news is that revenues are falling. Theres no question they would have been going through this even without the merger.
Details of the reductions beyond job cutting are also beginning to emerge. Reports in the British press over the weekend said Morgan Chase was targeting cost cuts of 15% to 20% in its investment bank, not just from jobs being eliminated but from more scrupulous spending, reduced bonuses, and general penny-pinching.
The weekend report in the Financial Times cited a six-minute voice-mail message to all of Morgan Chases investment banking personnel from Geoffrey Boisi, a vice chairman and who is the chief executive of investment banking. Mr. Boisis message reportedly said:
Saying thank you and farewell to colleagues, some of whom have been with us for a long time, is a painful and difficult process. But we think it is imperative in order to accomplish our long-term goals and to stay competitive.
A spokeswoman for the company in New York confirmed that Mr. Boisi had sent out a voice-mail message as part of his regular communications with investment banking personnel. She added, We are committed to managing overall expenses, but would say nothing more about the subject.