Good news is in short supply in the municipal market these days.
As a result of lower volume and tighter spreads, layoffs have already clipped other areas of the fixed-income market. Many municipal participants say they are
merely biding their time waiting for the inevitable pink slips to shower the market.
But the good news is that many municipal finance executives seem to have learned the lessons of past market history and vowed not to repeat them. As a result, layoffs and cutbacks during the current downturn are not expected to be as severe as those that had a choke hold on the fixed-income markets after the 1987 stock market crash.
As of last Thursday, new-issue volume this year totaled $110.79 billion, down about 41% from the same period last year. By the end of the first half of 1994, volume had declined by more than 49%, compared with last year.
A managing director at one major Wall Street firm is forecasting new issuance in 1995 of only $140 billion.
"You could see half the industry get laid off if that happens," the executive said. "I would expect there's going to be a second wave of layoffs, a third wave, and more. But I don't think you see firms getting out of the business."
Though the market is taking some consolation from the fact that no firms are expected to abandon the industry, participants are still wary of the future.
"You have to be concerned, because you sit here for 90% of the day and you stare at a blank screen," one municipal dealer said last week. "There's nothing going on."
Some major Wall Street firms have already begun cutting back. PaineWebber Inc. laid off three municipal finance professionals at the end of July, closing a regional office in San Francisco in the process. But officials at the firm denied that the layoffs signaled any consolidation.
Merrill Lynch & Co. also recently pulled three municipal employees from its Atlanta operations.
Public finance officials at other Wall Street investment banks are considering cutbacks, one regional dealer said.
Other municipal dealers said that some of the recent layoffs of fixed-income professionals reported at other major firms such as Smith Barney Inc., Prudential Securities Inc., and Merrill Lynch have included municipal employees.
Executive recruiters point to a downturn in the request for municipal executives as a symptom of the market's malaise.
"We have been doing less work in public finance this year than we did a year ago," said Phillip B. Plank, president of Hudson Search Consultants, a New York-based executive search firm.
Business at the firm has declined about 25% compared with a year ago, Plank said.
There has been some interest in professionals with experience in new product development or product surveillance, he said.
In the meantime, the number of resumes from professionals seeking new positions has increased.
While poor performers and those with limited qualifications and older employees could be the first to be released, "every time you have one of these consolidations, it's another assessment of the workforce." Plank said. As a result, he said, some professionals may begin pursuing other opportunities in an effort to "stay ahead of what's happening."
Despite the competitive environment in which employers would seem to have the advantage, there still can be opportunities for top performers, Plank said.
The search consultant said he has noticed that many professionals continue to negotiate to keep earned bonuses when moving from one firm to another.
While layoffs my loom at a number of municipal firms, there are some bright spots within the industry.
"We are experiencing the same declines in new-issue volume as everybody else, but we did not staff up for the last few years as some of our competitors did," said a public finance executive at a major Wall Street firm.
"What I am seeing are some regional firms expanding," said Richard N. Baggott, a public finance recruiter and head of Executive Search Placements in Boulder, Colo.
"I think the place to be in the 90s is the regionals," Baggott said. He said that local officials like the attention they receive from regional firms and the perception that "they're at the top of the bankers' list."
Indeed, regional firms may be better positioned to ride out a market downturn without reducing staff, said Kevin G. Quinn, president of A. Webster Dougherty & Co. in Philadelphia.
Smaller firms have less overhead and a lower cost structure that may enable them to survive with less business, Quinn said.
"I've had people calling me. I think there's a lot of nervousness about the future," Quinn said.
Aaron Pressman contributed to this article