Wall Street Firms Face More Cutbacks

Belts may be about to get a little bit tighter on Wall Street.

Merrill Lynch & Co. (ticker symbol: MER) and other Wall Street firms probably will have to cut more jobs after trimming payrolls by about 5% because of a longer-than-expected slump in investment banking and stock trading, two analysts said in research reports released Thursday.

Firms need to reduce expenses as the industry struggles through its toughest year for profits since 1994, said analyst Henry McVey of Morgan Stanley Dean Witter & Co.

“If business does not pick up materially after Labor Day, all firms, including Merrill, will have to trim their expense base, which could be a catalyst for much more significant head-count reductions,” McVey said.

McVey reduced his third-quarter profit forecast for Merrill by 25% to 38 cents a share. UBS Warburg’s Diane Glossman lowered her Merrill estimate by 4% to 48 cents a share.

Glossman also cut her forecasts for Goldman Sachs Group Inc. (GS) to 91 cents a share, for Morgan Stanley (MWD) to 68 cents a share and for Lehman Bros. Holdings Inc. (LEH) to $1.39 a share.

Merrill shares fell for a fifth day, sliding 95 cents to $52.65. Lehman fell $1.11 to $68.51, while Goldman lost $1.75 to $80.05. Morgan Stanley shares slumped $2.16 to $56.09 in their second day of declines.

The lower expectations for profit are “led by weakness in investment banking and trading,” combined with expenses that remained about the same, Glossman said in a report.

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Falling Down

Shares of brokerage firms have tumbled as Wall Street grapples with a slowdown in business.

Amex index of 13 brokerage stocks, weekly closes and latest

Thursday:

459.26, down 11.55

Source: Bloomberg News