Merrill Lynch & Co. Inc. and Bear Stearns Cos. Inc. Announce Restructurings
Standard & Poor’s reported that Merrill Lynch & Co. Inc. (rated AA-/Negative/A-1+) and Bear Stearns Cos. Inc. (rated A/Negative/A-1)have separately announced major restructurings in which both firms are accelerating the pace of cost saving initiatives and layoffs that had begun earlier this year. These actions indicate that the senior management of these companies are pessimistic about the near-term outlook for the domestic securities industry. In particular, the weakness in U.S. equity origination and merger and acquisitions activities shows no signs of a pickup any time soon. As a result, it can be expected that the investment banking divisions at these two companies, and at other Wall Street firms as well, are primary targets for headcount reductions. The dismal revenue outlook and the need for more expense cuts reinforce the negative ratings outlooks on Bear Stearns and Merrill Lynch. In the case of Bear Stearns, the company is eliminating about 7.5% of its workforce, both front-line and back-office personnel. Merrill Lynch’s newly formed new senior management team is currently reviewing all of its businesses, a process which will continue through the end of the year. The extent of any expense cuts has not yet been determined, but Merrill Lynch’s money-losing Japanese private client business and its joint venture with HSBC are particularly vulnerable.