NEW YORK -- J.P. Morgan Investment Management is shedding up to 5% of its 2,000-person institutional staff worldwide as part of cost-cutting by its parent.
Sources said the departures include four managing directors, 10 portfolio managers, 17 financial analysts and numerous marketing, back-office and support staff.
News of the layoffs stunned the investment industry. Morgan, with $257 billion in assets, is one of the most venerated names in the money management business and is considered one of the great success stories in the global institutional market.
The cutback is the latest indication the parent bank has asserted greater control of the investment management operation. The unit was spun off into a separate subsidiary in 1984 to assure its independence.
"This is one of the big problems with having banks own money management companies," said Richard Morris Jr., managing director with Putnam, Lovell & Thornton Inc., London. "This is why everybody left the banks, including Morgan, in the 1970s and '80s."
The departures stem from bankwide efforts to curb spending growth after disappointing fourth-quarter earnings and losses in Asia.
Some clients, however, were not perturbed by the cuts. John Carroll, vice president-investments with GTE Corp., said: "I don't think it's going to have any material effect on the investment group."
Morgan manages $2 billion in a multiasset class strategic relationship with the $16 billion GTE pension fund, Stamford, Conn.
Dennis Kass, managing director and head of Morgan's global institutional business, said: "Our commitment and ability to deliver in terms of investment performance . . . is unaffected."
Bank officials added the rate of expense is being trimmed, not axed, coming after a nearly 50% growth in personnel since the end of 1995. "They're going to invest more in this business than last year," a bank spokesman said.
Officials at J.P. Morgan declined to detail the scope of the departures or name the individuals involved.
According to sources, key departures in New York include marketer Lou Ann Dolan, who four years ago joined Morgan from Callan Associates Inc., and Eduardo Cortes, an emerging markets bond manager.
In addition, a number of longtime Morgan employees are expected to take early retirement. They include: William B. Petersen, a domestic equity portfolio manager and managing director; 27-year Morgan veteran Henry Cavanna, who manages equity and balanced portfolios and is a managing director; and Vice President Gerald Osterberg, a domestic balanced manager.
Managing directors Roger Sayler, head of the global derivatives team, and Dick Davis, who was in charge of global institutional marketing until the middle of last year when he was shifted into a corporate strategy role, also are taking retirement packages.
London group cut
In London, Morgan disbanded its 13-member capital markets research group, laying off nine and reassigning the others. The group, headed by Grant Caldis, who is among those laid off, applied quantitative techniques to bond and currency strategies. The firm's U.S. quant team remains intact.
Morgan also disbanded a small London-based derivatives team. A junior marketer and fixed-income manager in the London office were terminated.
The extent of departures in Morgan's continental European and Asian offices could not be learned.
"What has transpired here over recent months, including last week, was taken with regard to the needs and opportunities of this business," Mr. Kass said.
"There will be a continued focus on efficiency, productivity and resource allocation."
In a Feb. 23 letter to employees, Douglas A. "Sandy" Warner, chairman of J.P. Morgan & Co., wrote, "Our stock is lagging competitors', and some observers have questioned the viability of our strategy."
Last year, Morgan's stock rose a meager 15.6% -- only one-third of the 46.8% rise in the Standard & Poor's 500 major regional banks index, according to Datastream/ICV, London. Return on equity was 13.4%.
News of the staff cutbacks buoyed the stock: it rose 311/16 Feb. 24, closing at 116. The stock has outperformed the S&P banks index so far this year, closing at 1219/16 March 5.
In his letter, Mr. Warner rejected, however, market rumbles of a merger, saying the bank's go-it-alone strategy holds out greater promise "if we execute it successfully."
The pressure to perform is clear. The Asian financial crisis caused the bank to write off $587 million in exposure -- primarily from swaps.
But the "bigger issue is that our rate of expense growth has exceeded revenue growth in three of the past four years," Mr. Warner wrote.
Still, the cutbacks in investment management are striking, given Morgan's prestige and recent growth. In the fourth quarter, revenue from asset management services (which includes Morgan's private bank) grew 14.5% to $277 million. For 1997 as a whole, revenue increased 14.7% to $1.04 billion.
And the firm continues to rake in new business. J.P. Morgan was the sixth-biggest winner of new U.S. institutional tax-exempt business in 1997, with $12.26 billion in net new accounts -- even though it submitted data only through Sept. 30 (Pensions & Investments, Feb. 23).
Of that figure, the biggest chunk came from domestic bond portfolios totaling $8.18 billion, while U.S. equity contributed $2.55 billion.
Observers said the cost-cutting reveals investment management no longer is insulated from actions affecting the entire bank. Insiders noted investment management was virtually excluded from layoffs in 1989 and 1993.
Some track the bank's reassertion of control to late 1996. The appointment last May of Ramon de Oliveira -- former head of Morgan's equity underwriting business -- to run the money management business brought the unit even closer to the bank.
Under Mr. de Oliveira, institutional money management was combined with Morgan's 1,300-person private bank, creating the 3,300-strong asset management services group.
What's more, he led a push into alternative asset classes, where large funds typically invest about 10% of plan assets. Last fall, the bank brought on board the private equity team from AT&T Investment Management Corp. and bought O'Connor Realty Advisors.
Last summer, Morgan also bought a 45% stake in American Century Cos. for $900 million, giving the bank a much deeper reach into the defined contribution business.
Mr. Kass said Morgan will continue to focus on building multiple-account relationships with large U.S. defined benefit plans. Morgan clients with more than $3 billion in assets apiece have on average three separate mandates with the firm, he said.
The firm also enjoys "excellent momentum" in the British and Japanese pension fund markets, he said.
But insiders said the bank also has jacked up sales and profitability targets, and cite a more short-term orientation in expectations. They said the layoffs and early retirements are bad for morale and may lead to additional departures -- voluntary or enforced.
"It's a trauma for the organization," said one former staffer who left before the recent layoffs.
Mr. Morris said: "You will see some valuable people move because of this, because it creates uncertainty."
But Mr. Carroll thinks the departures will have little impact on the firm and sees the move as a way to improve the parent's profitability.
"It's not a problem with the investment management group," he said.
Rather, it's the bank's efforts to get into the top tier of investment banking that are driving the changes, he said.