Wall Street began notching casualties from the sub-prime fiasco in earnest this week. At several leading banks, both generals and mortgage-lending foot soldiers are being shown the door.
Merrill Lynch booted three top fixed-income executives, The Wall Street Journal reported Thursday. UBS ousted its investment bank head and its CFO, announced it's eliminating 1,500 jobs and wrote down its fixed-income holdings by more than 4 billion Swiss francs ($3.4 billion), according to Bloomberg News. Meanwhile, the Financial Times said Citigroup's chief executive is reviewing "whether heads should roll" after the bank unveiled $3.3 billion in third-quarter write-downs and losses from loan commitments, sub-prime mortgage bonds and credit trading. Morgan Stanley and Bear Stearns announced layoffs from their respective mortgage units, while Credit Suisse said it's cutting 170 investment banking jobs, in addition to the 150 layoffs from its mortgage-backed securities unit announced last week.
The senior departures from Merrill are Osman Semerci, who was global head of fixed income; Dale Lattanzio, co-head of fixed-income for the Americas, and Dow Kim, co-head of institutional securities. The bank named as its new global fixed-income head David Sobotka, who sold his energy trading firm to Merrill in 2004.
Risk Managers Could Gain Influence
The Journal suggests that Merrill's shakeup may favor individuals with risk management credentials. Semerci is a former broker who "had more experience in sales than risk management. Both he and Mr. Kim were known for putting a greater priority on expanding market share than on risk controls," the Journal says.
Kim, one of Merrill's highest-paid executives last year, had announced his intention to leave several months ago, on amicable terms that included an understanding Merrill would invest in his new hedge fund, Diamond Lake Investment Group. But the parting is no longer amicable, the WSJ says: "Merrill no longer plans to make such an investment, and Mr. Kim left the firm abruptly this week, according to people familiar with the firm."
The bank held Kim and the other two ousted executives responsible for sub-prime-related losses that a Goldman Sachs analyst last week estimated at $4 billion. Merrill has yet to disclose a figure for its likely write-downs. It will report third-quarter results later in October.
UBS' Latest Shakeup
UBS, in its fourth shakeup in six months, announced the departures of Huw Jenkins, chairman and chief executive of UBS Investment Bank, and Clive Standish, chief financial officer. Parent company UBS AG replaced its head of fixed-income in August and its chief executive in July. Those changes followed a May announcement that UBS would disband its Dillon Read hedge fund due to sub-prime-related losses.
This week, the Swiss-based institution said it had a third-quarter pretax loss of 600 - 800 million Swiss francs ($510 - 680 million), including the 4 billion francs write-down. It also said it's cutting 1,500 jobs, or 7 percent of its work force.
Executive changes also could be in store at Citigroup, which warned Monday that third-quarter earnings fell 60 percent from last year due to losses from sub-prime mortgage-backed securities and buyout loans. The company will announce quarterly results on Oct. 15.
"Chuck Prince, Citigroup chief executive, wants to see the results of a review of the $3.3bn of losses and writedowns in its markets and banking business in the third quarter before deciding whether heads should roll," reports the Financial Times, citing unnamed senior executives. "Mr Prince is involved in the review, which colleagues say could prompt personnel changes."
Layoffs at Morgan Stanley, Bear Stearns, Credit Suisse
Morgan Stanley said Tuesday it will combine three mortgage units and close some offices, leading to the elimination of 500 jobs in the U.S. and 100 in Europe.
Wednesday saw Bear Stearns make a similar announcement, fusing its Bear Stearns Residential Mortgage and Encore Credit mortgage businesses and laying off 310 workers, or 2 percent of its work force. Bear Stearns had helped trigger the summer rout in credit markets when two mortgage hedge funds it ran collapsed early in July.
Also on Wednesday, Credit Suisse announced 170 layoffs in its investment banking unit. The bank says it expects the mortgage market to remain troubled for as long as 18 months. Last week Credit Suisse announced 150 layoffs from its mortgage bond business in New York and London.
Finally, Deutsche Bank announced $3.12 billion in combined write-offs from mortgage securities, structured credit and leveraged loans. However, its third-quarter profit estimate of $1.98 billion was better than many analysts had expected, and Deutsche's shares rallied Wednesday on the announcement.
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