Stock brokerages posted a slim loss in workforce in the past 12 months, reflecting uncertain times on Wall Street.
This week’s Business Journal list ranks the 19 largest brokerages by number of Orange County employees.
Overall, OC employment fell 3% to 2,127 workers, with the number of registered representatives also declining 3% to 1,449.
Major indexes posted modest gains during the past year, with the S & P; 500 up 7%, the Dow Jones Industrial Average gaining 3% and Nasdaq unchanged.
Employment at stock brokerages generally tracks the performance of the market, though this year was an exception,as was last year when brokerages shaved 4% of their workforce despite solid stock gains.
The cuts could reflect brokerages’ cautious outlooks, with high oil prices, up-and-down economy, approaching election and terrorist concerns playing into their strategies. (See related story, page 21.)
Seven brokerages reported cutting workers in the past year, five added employees and three held staffs steady. Four brokerages didn’t provide numbers and are Business Journal estimates.
The overall decline largely came from job cuts at the top two brokerages: No. 1 Morgan Stanley in Santa Ana and No. 2 Merrill Lynch & Co. in Newport Beach.
Morgan Stanley maintained the top spot, despite reporting a 13% decline in OC workers to 336. The brokerage also cut its registered representatives,or brokers,by 16% to 249.
Like many of the major Wall Street brokerages, Morgan Stanley has laid off thousands of employees companywide to keep costs in check.
The company’s Santa Ana office was affected “along with the rest of the company,” said Bob Cuajao, executive director for that office.
Likewise, Merrill Lynch posted a 13% decline in workers to 306. Merrill Lynch trimmed its registered brokers by 6% to 203.
That continued a period of retraction for Merrill Lynch locally, which shaved 10% of its workers a year earlier. Last summer, the company closed its office in Newport Center and moved workers to Newport Beach’s MacArthur Court.
Taken together, Merrill Lynch and Morgan Stanley accounted for 97 OC job cuts, nearly twice the list’s overall decline of 63 workers.
No. 3 Smith Barney Inc., a unit of N.Y.-based Citigroup Inc., declined to disclose its local workforce and is a Business Journal estimate at 300 total employees and 200 registered representatives.
No. 4 UBS Financial Services Inc. grew its headcount 2% to 266, though it cut its broker stable by 6% to 134.
Why add overall staff when revenue-generating brokers are let go?
“Sometimes a broker will leave and their support staff will stay on and assist other brokers,” said Peter Casey, a New York-based spokesman for UBS. “There can literally be hundreds of reasons why that’s the case.”
A handful of OC stockbrokers bumped up employment by substantial amounts.
No. 6 Roth Capital Partners LLC boosted local employment 27% to 132 people. Newport Beach-based Roth Capital added institutional sales and research staff.
“We’ve built on our senior research side over the past couple of years,” said Byron Roth, chief executive of Roth Capital. “And we’ve also developed the institutional sales staff.”
Roth Capital is the largest homegrown brokerage on the list. Three others based in the county are No. 9 Finance 500 Inc. in Irvine, No. 10 Brookstreet Securities Corp., also in Irvine, and No. 17 Mischler Financial Group Inc. in Corona del Mar.
No. 7 Wells Fargo Investments LLC bumped employment at its Newport Beach office by 33% to 100. It also increased its broker headcount 36% to 75.
No. 9 Finance 500 upped employment 15% to 78 and its brokers 21% to 58.
Other stockbrokers who saw OC employment fall: No. 8 A.G. Edwards & Sons Inc. in Irvine, down 10%; No. 11 Charles Schwab & Co. in Laguna Hills, off 8%; No. 12 Crowell, Weedon & Co. in Newport Beach, down 11%; and No. 14 The Seidler Cos. in Irvine, off 18%.
The largest percentage decline on the list came from No. 16 Wedbush Morgan Securities Inc. in Newport Beach, which cut 29% of its workers as the Los Angeles-based company shed support staff here. Wedbush still has 20 brokers in the county.
There were some notable departures from this year’s list.
Friend & Co. dropped off after the company merged with B. Riley Co. and sold its institutional brokerage business.
Meanwhile, J.P. Morgan Chase & Co. closed its Newport Beach office in the past year.
PAUL A. MCCULLEY
Managing director
Pacific Investment Management Co.
Newport Beach
Oil price shocks are not, at first glance, a complicated economic event to analyze: Price shocks increase the cost of living for those who must consume oil that they don’t own. It really is that simple. And an increase in the cost of getting by, as it was known where I grew up, is axiomatically a reduction in the standard of living for such folks: American workers driving to work in America, a country that consumes more oil than it produces.
And they don’t like it. After paying up for petrol, they have less purchasing power left from their paychecks to buy other things. In this sense, the oil price shock is similar to a tax hike, as the cliche goes. Indeed it is. Tax hikes are negative for economy-wide aggregate demand for non-oil expenditures, particularly tax hikes of a regressive nature, as an oil price shock is. Concurrently, inflation arithmetically goes up, as the weighted average increase in oil prices swamps any weight-averaged softening in non-oil prices associated with weakened demand. So, an oil price shock is a tax hike with stagflationary consequences. Nasty stuff.
Yes, it is true, as many argue, that such a shock is not as severe today as it was three decades ago, as energy per unit of GDP has declined. Which brings us to the issue of how the present oil price shock will be defused: slower growth, higher inflation, or both?
The easy answer is: both. The tougher answer is: It depends. Yes, I know that’s always the economist’s fudge, forever saying that everything depends on everything else. But that does not make it any less true in the case of the aftermath of an oil price shock. How the Fed responds or doesn’t, and the impact of that response or non-response, will depend critically on the Fed’s assessment, and then the reality, of how the negative real shock is defused.
Conventional wisdom at the Fed is that policy makers can be chilled about the inflationary impact of the oil price shock if those that are negatively shocked will just take their hit like real men and women, with (1) producers of non-oil products resisting accelerating price hikes, in an attempt to protect their real profit margins and (2) workers resisting demands for heftier cost-of-living salary increases, in an attempt to avoid cutting their real non-oil consumption basket. In contrast, so conventional wisdom goes, the more that producers of non-oil products and workers try to “make themselves whole” for the negative real shock of the oil price shock, the more the Fed should beat them to their senses with tighter monetary policy.
Bottom Line
The Fed does not presently have the flexibility to preemptively tighten so as to “insure” that producers and workers take the real oil price shock lying down. They might, in which case the oil price shock will be a one-time level adjustment for price indexes and output indexes. It will look like stagflation while those levels are adjusting, but once they’ve completed their adjustment, growth rates for those indexes will return to their status quo ante. And Greenspan will look like he walks on water unfrozen.
Alternatively, producers and workers might “fight back,” as they did in the 1970s, in which case logic implies less nasty stag in the short run but higher ‘flation in the long run. In which case, in the long run, with inflation well above the Fed’s implicit inflation target, the Fed once again will embark on a mission of opportunistic disinflation.
But not here and not now. The Fed presently is embarked on a journey of measured tightening and the oil price shock is not likely to either accelerate or halt that journey. But in the unlikely case that it does, the oil price shock is far more likely to temper the Fed’s tightening impulse rather than to agitate that impulse.
Excerpted from McCulley’s September “Fed Focus” article at www.pimco.com.
