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Merrill Lynch Layoffs Part of Cost Cutting; Shearson Starts Hutton Layoffs

December 14, 1987

NEW YORK (AP) _ Merrill Lynch & Co. said Monday it would lay off an unspecified number of employees, reduce commissions and freeze some salaries next year as part of a cost-cutting restructuring.

Officials of the giant investment firm declined to state how many employees could lose their jobs, or how much money it could save by the cutbacks.

Separately, E.F. Hutton Group Inc. indicated that this week it would begin notifying employees who are to be laid off immediately or after completion of its historic merger with Shearson Lehman Brothers Holdings Inc.

Hutton and Shearson officials have estimated a total of 5,000 to 6,000 employees at the two firms could lose their jobs as the firms integrate over the next six months.

Merrill Lynch said its cutbacks were part of a three-year-old strategic plan aimed at focusing resources on core businesses and streamlining to meet market conditions. However, those changes were accelerated by the stock market’s October crash.

Merrill Lynch officials said the firm planned to cut costs and improve profitability next year chiefly by lowering compensation to employees, improving how it processes business and making selective increases in prices - such as fees - of financial products.

Key elements in the plan will be compensation cuts. Merrill Lynch will reduce commissions to its 12,200 retail brokers by 6 percent next year, which could save about $65 million if retail revenue remains the same as in 1987, officials said.

The firm also will cut the amount of money paid for 1988 performance bonuses by 10 percent from this year. Officials declined to say how large the bonus ″pool″ was last year, or how large it was expected to be for 1987.

About half the company’s systemwide payroll of 47,000 are eligible for the bonuses.

Other cost-cutting measures will include a six-month salary freeze for non- clerical employees; continued review and reduction of management costs; and ″selective reductions″ of payrolls in areas warranted by business conditions.

William Schreyer, Merrill Lynch’s chairman and chief executive, said the size of the layoffs would depend on how individual managers decided to meet their cost-cutting guidelines.

″We’re not doing it in terms of bodies,″ he told a news briefing.

Merrill Lynch brokers were informed about the cutbacks through a videotaped presentation by Joe Grano, director of sales, who contended a ″precipitious″ cut in costs was necessary in light of the consolidation on Wall Street and the uncertain conditions created by the October crash.

Schreyer said retail managers who were told of the cuts at a meeting Sunday in Chicago reacted favorably.

Other steps taken under the restructuring have included the sale of the firm’s real estate operations, the sale of commercial real estate and leasing portfolios, and a 25 percent staff reduction in municipal bond operations over the past two years.

With 482 U.S. branch offices and 12,200 account executives, Merrill Lynch claims to be the nation’s biggest retail brokerage.

Its parent Merrill Lynch Inc. earned $454.3 million, or $4.30 a share, on revenue of $9.61 billion in 1986. At the same time, expenses grew by 35 percent, reflecting the torrid growth on Wall Street due to booming business and to expansion spurred by increasing competition in global financial markets.

Other major firms were retrenching before the stock market crash, due to spiraling expenses and competitive changes in the industry. In early October, Salomon Brothers Inc. disbanded its large municipal bond business, cutting 800 people; L.F. Rothschild Holdings Inc. reduced its municipal bond business and trimmed 150; and Shearson laid off 150 in its London office. The merger- related layoffs expected at Hutton and, to a lesser extent, Shearson were widely expected due to duplicate functions and other inefficiencies created by the combination.

Completion of the merger was expected to take about six months. Layoff decisions will be made throughout that period, although Hutton will being giving out pink slips this week.

Hutton employees either will be laid off outright, asked to remain until the merger is completed, or will remain with the combined companies following the merger.

Robert Sharkey, a spokesman for Hutton, said those being laid off outright would be given their choice of two weeks’ notice or two weeks’ pay and immediate severance.

Hutton will offer special bonuses for employees who are asked to stay temporarily, Sharkey said.

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