Last One Left, Please Turn Out the Lights

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In 25 years on Wall Street, I have never seen things this bad. We’ve had some tough times: the 1987 stock-market crash, the collapse of the once-all-powerful Drexel Burnham Lambert, the immolation of Long Term Capital, the post-9/11 calamity, and the dot-com implosion. Every one of these events rocked the Street, causing pay cuts and layoffs and creating a sense of doom. But this time is different; it’s doom itself.

Wall Street closely guards its layoff numbers, but piece together the evidence and a grim picture appears: an estimated worldwide total of 4,000 dismissals at Morgan Stanley, 5,000 at Merrill Lynch, 7,000 at UBS, and 16,000 at Citigroup. Even the extremely profitable Goldman Sachs is letting people go in some departments. Then there’s Bear Stearns. A year ago, Bear was the firm to work at. People talked of the Era of Bear. Now it’s gone. Vanished. With more than 10,000 of its 14,000 former employees either looking for work or soon to be laid off by its new owner, JPMorgan. Right, JPMorgan—the firm that seemed to pants the Fed and Treasury when it snapped up Bear Stearns for a pittance. Well, it now appears possible that Morgan may have grossly underestimated how terrible the Bear bond portfolio may be. The thinking on the Street was that Morgan couldn’t miss; it got $30 billion in guarantees against losses. But now it looks like the losses might exceed the guarantees. For those of us looking to Morgan as the best-capitalized play on Wall Street after Goldman, one that could emerge as a strong player when things get better, the possibility that the Fed got the better end of the deal is chilling. As if all that weren’t bad enough, news came last week that Lehman Brothers is fighting for its corporate life. As someone who has great respect for Lehman CEO Dick Fuld, I’m stunned at the size of the reported $2.8 billion loss for the quarter just finished, especially considering how confident the company was about its prospects for that quarter a couple of months ago. They just raised $6 billion in capital at what I thought were fire-sale prices, but immediately the stock went below the $28 offering price, even though that figure already represented a hefty discount versus the previous week’s price. The people who bought into this deal have to feel like they just leased an apartment in Dresden after the first 400 bombers hit, not realizing that there were another 900 behind them. Lehman’s compensation costs are so out of control that it’s going to need to break out the electric bleachers to downsize ahead of the short-selling posse. It already reassigned CFO Erin Callan and COO Joseph Gregory. The 28,100 overpaid, underworked employees who remain in place are simply ballast on Lehman’s leaky ship.

In typical times, the castoffs from these sinking (or sunk) firms would have no problem finding jobs. When Drexel collapsed, or Deutsche Bank picked off Bankers Trust, or Prudential eliminated its equities business, there was always some shop on the rise, looking to hire. But these are not typical times. This time around, no firm—no area of the business—is rising. Every product, from stocks and bonds to mergers and acquisitions to corporate finance, is under pressure at every bank. The clients themselves, fresh from getting talked into buying horrid complex products, many of them mortgage-related, are not exactly eager to buy anything exotic, which is where the big fees have been coming from in recent years. Worse, the same clients sold lots of those exotic products back to the firms that issued them, and I don’t believe all the write-downs on that acid-reflux inventory have been taken yet, particularly at Lehman, Merrill, and Citigroup. I expect tens of billions more in write-downs from those three firms alone.

At the same time, a host of other profit sources are drying up. Private-equity deals have shut down almost completely, as the slowdown in the economy has stoked fears that the newly privatized, debt-laden companies won’t be able to make good on their bonds. The banks are no longer generating profits from lending hedge funds billions to buy product, because the brokers ended up taking a beating when the clients borrowed too much and then began to default on those loans. The bankers and brokers had moved aggressively into these fixed-income revenue rivers in the first place because the equities-trading game, long a mainstay of all of these firms, had become so commoditized that it was impossible to make money from it. To make matters worse, former attorney general Eliot Spitzer destroyed a once-sweet fee-generating scam—the practice in which banks’ research departments wrote rosy reports about companies in order to win their investment-banking business and rake in the M&A profits. No wonder all of these stocks are at or near their multiyear lows, depths not seen since the dot-com aftermath of 2002, when Wall Street last shriveled.

Not all is grim. Morgan Stanley, for one, is making a concerted effort to build an asset-management business, where it takes clients’ monies and manages them in-house. That’s nowhere near as lucrative as selling proprietary mortgage bonds, or other exotic products, but asset management tends to have a longer half-life because individual money is “sticky,” not “hot”—it stays in one place.

Then there is Goldman Sachs. Goldman, from the days that I worked there in the eighties, always had a phrase, “long-term greedy,” that it used to discourage those brokers who wanted to make a trade that made a quick buck for the salespeople but wasn’t in the best interest of the client. “Give them the dollars, you take the pennies, and they will be with you for life,” my old boss used to say. That approach is why the firm never fell into the Bear trap, and why it’s been able to buy back 11 percent of its equity in the past four years, rather than issue billions of dollars in value-diluting stock.

I am an inherent optimist about Wall Street. Every time I’ve seen one business go down, there was always a replacement business right behind it. The Street was always like a four-engine plane: It could handle one, even two engines going down, and keep flying. Now, though, it feels like all the engines—investment banking, bonds, equities, and mergers and acquisitions—have shut down at once. Try as I might to see where new business can come from, I don’t see it coming anytime soon. That’s bad news for the banks and their shareholders. It’s bad news for the 200,000 or so people who work on the Street and the estimated 850,000 who buy and sell securities nationwide. And it’s bad news for the New York co-op owners, real-estate brokers, and others who benefit from Wall Street largesse.

God knows why, but people often call me to see if I can help place them or their brother or daughter or nephew at a Wall Street firm. There was a time when I would happily say yes; sometimes my help even worked. Not anymore. These days, I don’t even bother. The era of the big Wall Street payday is over. When people call me looking for a job, I tell them to try a law firm.

James J. Cramer is co-founder of He often buys and sells securities that are the subject of his columns and articles, both before and after they are published, and the positions he takes may change at any time. At the time of this writing, he owned Goldman Sachs and Morgan Stanley for his charitable trust. E-mail: To discuss or read previous columns, go to James J. Cramer’s page at Get all of James J. Cramer’s stock picks via e-mail, before he makes the trades, by subscribing to Action Alert Plus. A two-week trial subscription is available at

Last One Left, Please Turn Out the Lights