Bear Stearns cuts another 310 jobs

The wave of Wall Street layoffs grew yesterday as Bear Stearns said it would eliminate 310 more mortgage jobs and analysts warned that investment banks may wind up making much bigger cuts.

The news came as Bear reorganised its mortgage business and brought the bank’s total cuts to 540. It came a day after Morgan Stanley laid off 600 mortgage-related workers and Credit Suisse said it would shed 170 in its investment banking arm, bringing its total job losses to 320. Lehman Brothers has cut 2,500 mortgage-related jobs.

Richard Bove, analyst at Punk, Ziegel, said Wall Street banks may eventually have to cut up to 10 per cent of their total workforce to reflect falls in revenue from fixed-income businesses.

Most of the cuts so far have come at the banks’ mortgage origination units and have been spread around the US. But some have come from the ranks of highly compensated New York-based bankers and traders, and more such layoffs are expected.

Such cuts could have a significant impact on the New York economy, which depends heavily on Wall Street compensation to support housing and other industries. Wall Street provided nearly $24bn in bonuses last year, generating more than $2bn in tax for the city and state. That figure is expected to be down this year.

Bear is the biggest participant in the mortgage business on Wall Street and its earnings plunged 61 per cent in the third quarter. The bank also suffered the embarrassing collapse this summer of two mortgage-related hedge funds run by its asset management division.

Bear said it would combine its mortgage origination businesses, Bear Stearns Residential Mortgage and Encore Credit, into one unit called Bear Res. The unit will be headed by Jeff Walton, head of Bear Stearns Residential Mortgage.

The bank has cut 40 per cent of its mortgage origination workforce since the start of the year. The cuts are the result of a fall in mortgage origination and a collapse in demand for mortgage-related securities.

The downturn began with a rise in defaults among high-risk mortgage borrowers. Wall Street firms built large, integrated mortgage businesses to ensure a flow of loans to package into securities for sale. Some are now closing down origination units, especially those focused on subprime loans.