This article was last updated on November 17
A number of employees in the financial services industry have even more reason to be concerned about their jobs after the collapse of storied financial institutions Lehman Brothers (LEH) and Merrill Lynch (MER). This follows on the heels of the Treasury Department’s seizure last week of the nation’s two mortgage giants, Freddie Mac and Fannie Mae, which are under organizational review. While a number of groups have been affected by the ongoing crisis, it is employees of the collapsed financial institutions that have been hardest hit because not only do they rely on the company for their paycheck and livelihood, they also tend to be long term stock holders (via employee share plans) with significant ownership stakes. To compound matters most were not fully prepared for the relatively abrupt weekend company closures and/or management changes which meant that they had little time to find other jobs – not that many are currently available. With over 50,000 employees expected to be let go from Lehman and Merrill before month end, there are going to be a lot of ex-employees struggling in a tough economic environment. Here are some reports of how employees at these companies have been affected and their future outlook:
The future of about 25,000 employees at Lehman and an additional 60,000 at Merrill is up in the air. Lehman’s work force already has shrunk by about 3,000 in the past year. If the firm essentially goes out of business, most of the remaining employees are likely to lose their jobs. That would deal another blow to New York City’s economy, resulting in lower tax revenues on personal income, real-estate transactions and corporate income. (WSJ.com)
Roger Freeman, a nine-year Lehman employee who analyzes brokerage firms, spent the weekend gathering cell phone numbers and email addresses from colleagues who also are likely to lose their jobs. He plans to clean out his desk Monday morning. “We worked long hours here, we’ve made some of our best friends here. We’re suddenly being ripped apart,” he said. “It’s just unbelievable.”
Winthrop H. Smith Jr., a former Merrill executive whose father helped build the firm, said the acquisition would represent “a very sad moment for myself and my family and the thousands of families who worked for Merrill Lynch over our 94-year history, sad to see a firm that always prided itself on its independence absorbed” into another. (WSJ.com)
Outside of the back office, some sales people, traders and brokers will likely be kept on, but the bulk of Lehman’s rank and file, such as investment bankers, will be out of work. A further blow is that about 25% of Lehman is employee-owned, which means that most employees lost their savings as well as their job. “Shareholders are toast,” Jay said, and strongly criticized employee-stock ownership plans in general. “From an employee standpoint, it’s one of the worst things to get,” he said. “You’re definitely taking on more risk if you work for an entity that pays you in part with stock.” (Marketwatch.com)
Where there is duplication, however, the combination of the two companies [Merrill and Bank of America] could result in more layoffs. The end result will likely lead to overhauls and layoffs at both companies, not just Merrill, as Bank of America strives to realize cost savings of $7 billion by 2012. Both have already cut thousands of investment banking jobs over the past year.
Merrill employees who are laid off will have plenty of company, as many financial workers have lost jobs in the last year, leaving many without a paycheck. Appearing briefly in the morning before reporters in the Rose Garden, President Bush characterized the recent events as short-term market adjustments that would have a limited effect on an otherwise sound economy [Editor – This just goes to show how out of touch the president is!]. He added: “In the short run, adjustments in the financial markets can be painful — both for the people concerned about their investments, and for the employees of the affected firms. In the long run, I’m confident that our capital markets are flexible and resilient, and can deal with these adjustments.” [NY Times]
As recently as last Wednesday, Mr. Thain (Merril CEO) was still out selling the Merrill story. He met with worried employees and financial advisers in Minneapolis as part of a series of town halls he has been holding to answer employee questions. Mr. Thain reassured them about the company’s capital base, dwindling level of worrisome assets and the value of Merrill Lynch’s businesses, according to someone who attended. And he told them that the pain looked like it would end by 2009. [Lesson here – When a company CEO has to hold a town hall to tell all employees things are okay – then things are NOT okay!]
So while the lawyers, consultants and advisors make money from the bailout, takeover and winding down of these companies, it is the unfortunate employees who suffer the most at the end of the day. Shareholders lose money too, but at least they can claim the capital tax losses and move onto their next investment. In addition to financial impacts, employees also have to deal with the emotional and mental aspects
of losing jobs that seemed secure just a few months ago. If your job is at risk, the best thing you can do is be prepared.
On a final note, I know there has been a lot of press regarding the exorbitant salaries a number of the CEO’s of these failed companies have received over the last few years. Thankfully, many are now facing lawsuits by former shareholders and regulatory bodies to limit the golden parachute and/or generous termination payments. I hope that these failed CEO’s get as little as possible and that they are held accountable for their actions in the failures of these once iconic companies and the resultant job losses.
Submit your story. I received an email and comment from a reader (and ex-GSE employee) on my post covering the Freddie and Fannie bailout. It was an insightful story and makes you realize how little employees knew about the timing of the impending bailout. If you are an employee of one the firms that went under today (or of ones potentially at risk) and want to vent a bit, send me an email or leave a comment on this post (anonymous comments are avaialble) . I will combine the stories and thoughts I receive on this topic in a future post looking at what lessons can be learnt.
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