Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: TUESDAY, October 18, 1994 TAG: 9410180124
SECTION: BUSINESS PAGE: B-8 BUSINESS EDITION: METRO
SOURCE: Staff and wire reports|
DATELINE: NEW YORK LENGTH: Medium
As PaineWebber Group Inc. trumpeted its $670 million purchase of Kidder Peabody on Monday, Kidder employees braced for one of Wall Street's worst mass axings since Drexel Burnham Lambert died four years ago.
The agreement reached late Sunday between Kidder parent General Electric Co. and PaineWebber calls for the layoff of about half of Kidder's work force of 5,000, mostly to eliminate duplications in the newly combined brokerage firm.
The proposed acquisition would basically get the nation's fourth-largest industrial company out of the business of buying and selling securities, although it will have a 25 percent stake in the combined PaineWebber-Kidder enterprise.
The merger "will not affect us on the local level," said Haven R. Shuck Jr., manager of PaineWebber's office in downtown Roanoke. It has 18 employees, both brokers and staff. Kidder Peabody does not have a local office.
PaineWebber has been in Roanoke since 1970. Shuck said its predecessor firm, called Abbott, Proctor and Paine in Roanoke, was founded in the 1930s.
Amid a decidedly funereal mood in much of Kidder's Manhattan headquarters, other employees integral to the merger's success - Kidder's coveted army of 1,150 brokers - were showered with reassuring words by PaineWebber chairman Donald Marron.
Kidder's highly productive brokerage staff, which caters mostly to wealthy individuals, was the main attraction for PaineWebber, long seen as a second-tier contender in the brokerage business.
``We have a very good package to offer the Kidder brokers, one we think is good for them,'' Marron said. ``The key is keeping the people.''
PaineWebber and Kidder spokesmen had no immediate comment on compensation offers for Kidder brokers.
The companies' concern was understandable. Defections among Kidder's brokers have risen in recent months amid increasing turbulence at Kidder, which has been hammered this year by a scandal involving its star bond trader and massive losses in its mortgage-backed bonds division.
``No one here is worried'' about their jobs, said a stock broker at Kidder, who spoke on condition of anonymity. ``There's no reason why we should be. That's the division we [PaineWebber] want to keep.''
The Kidder cuts would create one of the biggest waves of layoffs in the securities industry since the collapse of Drexel Burnham Lambert Inc. put thousands of investment bankers on the street in 1991.
Around the company, Kidder managers held meetings with staff to break the acquisition news. No specific layoffs were announced.
``A majority of us are going to lose our jobs. Everything is up in the air right now,'' said a secretary in Kidder's equity research department, who said she intended to leave her job anyway to have a baby.
For GE, which has plowed about $1.4 billion into Kidder since acquiring the brokerage in 1986, the sale ends a troubled chapter for one of the most successful U.S. conglomerates.
The sale also was stark evidence of the failure of corporate America's once-ballyhooed foray into ``financial supermarkets'' that were supposed to win over large numbers of investors by offering a wide variety of services from stock investing to insurance.
Investors had little reaction to the GE sale Monday, which was rumored for weeks. PaineWebber stock rose 121/2 cents to $15 a share on the New York Stock Exchange. GE stock was unchanged at $50.371/2.
For GE, the Kidder odyssey has been particularly bumpy. Soon after GE bought a controlling stake, Kidder faced scrutiny from federal law enforcers for complicity in the insider trading scandals of the late 1980s.
In a deeply embarrassing episode, Kidder ultimately paid the government $25 million to settle securities law violations.
Early this year, Kidder began losing enormous amounts of money from a sharp drop in the bond market, where it was heavily exposed through its aggressive trading of fixed-income securities.
The pain increased in April, when the brokerage was hit by allegations that its star bond trader, Joseph Jett, had concocted $350 million in phony profits to hide losses and fatten his bonus pay.
Kidder fired Jett, who has insisted he is innocent and claims his superiors directed all of his trades. Federal investigators are examining Jett's tenure at Kidder, another deep embarrassment for GE.
The parent company dismissed Kidder's senior executives following the Jett scandal and replaced them with GE appointees. GE publicly insisted the company wanted to keep Kidder, but its worsening financial performance raised speculation that GE would sell.
by CNB