Not too surprisingly, the layoffs include several high-profile people who used to focus on structured finance and structured credit û a business that has come to a virtual standstill since the financial crisis took hold earlier this year. Among those who have left the bank this week, according to several sources, are Rajiv Garg, head of structured finance for Asia ex-Japan, Carl Im, a managing director and head of one the bankÆs specialist structuring teams, and Mark Long, who was head of the commodities team. Merrill Lynch declined to comment.
The downsizing, which is part of a global drive to reduce headcount by about 500, is a direct result of the decline in trading volumes and revenues as well as the worsening outlook for financial markets and is not related to the ongoing merger with Bank of America. Rather it marks a continuation of a cost-cutting trend that has seen Merrill reduce its headcount by 3,300 people in the past 12 months. The bank has posted five straight quarters of losses totalling $23.8 billion.
ôThis is a change of the business plan in response to the market situation which would have taken place whether or not the bank was being absorbed by BoA,ö says one of the sources.
Indeed, a BoA spokesman has earlier said that no decision will be made on staff cuts until the merger has been completed. Earlier this week, Merrill CEO John Thain told Bloomberg that he expects thousands of job cuts post the merger.
A clear sign that these layoffs are a direct response to the slowdown in trading activity is the fact that Merrill continues to hire for other parts of the bank. At the end of last month, it snapped up a team of six power sector investment bankers led by James Chapman from Lehman Brothers.
Before this latest round of layoffs, Merrill had about 60,900 employees, of which approximately 4,000 were based in Asia ex-Japan and another 1,500 in Japan. The reduction of staff in Asia, which depending on who you talk to is said to total between 75 and 100 people, is in proportion to the amount of revenues the bank earns in the region, indicating that the slowdown in trading activity has hit equally hard across the geographies.
This is different from the redundancies that are anticipated as a result of the merger with BoA, which are expected to come primarily in the US where the two banks have the greatest overlap. Asia is expected to suffer relatively less from those cuts, both because of the lower level of duplication between the two businesses here and because Asia is still regarded as a growth region that should lead the rest of the world out of the current economic slowdown.
One person familiar with the way Merrill used to structure its business says the bank had several specialty structuring teams focusing on different types of products. This was great in a bull market as the bank was able to customise services for the clients according to their needs, but it has left a lot of idle staff since these businesses came to a halt. One example is the team selling collateralised debt obligations û an asset class that has fallen completely out of favour with investors and has taken a lot of the blame for the credit crunch û which was effectively wound down months ago. Some of the people on these specialty structuring teams have been converted into generalists, but a majority are now being let go.
Rajiv Garg, who is said to have left the bank as a result of a negotiated settlement, had been with Merrill for at least 10 years. He left Hong Kong to join DSP Merrill Lynch in India in early 2006, but stayed only about 18 months. He has been based in Singapore since August 2007. He was followed out the door by six other people on his team. Another four or five people are part of a core Asia ex-Japan structuring team that is working on winding down the bankÆs remaining exposures.
Garg told FinanceAsia that he still sees short-term trading opportunities, however, and is planning to set up a boutique outfit to exploit those opportunities together with three other professionals with expertise within equities, rates and currencies respectively.
ôIf you read the market right, you can make a lot of money from short-term trading,ö he says.
The investment banks, meanwhile, face an environment where it will be a lot harder to make big returns as they will be under the watchful eye of the regulators. That in mind, it is highly likely that there will be more layoffs across the sector as costs are cut and businesses are adjusted to a new low-risk environment where investment banks are part of a bigger deposit-taking organisation and revenues will be derived primarily from agency-type businesses.
ôIt will be back to basics for most firms, the kind of business where you borrow at 3%, lend to clients at 6% and take a 3 percentage point margin,ö suggests one source.
That may well be a solid business plan for the big banks, but it isnÆt an exciting option for people who have over the past few years spent all their time working on complex and highly profitable structures and we may see more boutique firm sprout up as these guys are let go.
In other words, Garg and friends could soon get company on the trading floor.
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