Layoffs expected to shred Wall Street ranks

Bloated by years of frenzied growth, Wall Street banks and other firms are shedding tens of thousands of jobs and slashing entire divisions in their most drastic downsizing since the Great Depression. The moves promise to upend financial services and investment options for Americans from Wall Street to Main Street.

Those layoffs will drain New York and other cities of vital tax dollars while swelling the fast-growing ranks of the nation’s unemployed. U.S. employers cut 533,000 jobs in November — the most in 34 years — including 32,000 in the financial-services sector, the government said Friday.

Saddled with heavy losses and a shriveled stock price, Citigroup Inc. last month said it would eliminate 53,000 jobs, the second-largest job cut by a U.S. company on record. Other firms plan to drop the ax on tens of thousands more, especially in areas that specialize in the risky investment products that helped ignite the financial meltdown.

“I think it’s pretty clear that the whole financial sector is going to be smaller than it was,” said Kevin Logan, chief U.S. economist at investment bank Dresdner Kleinwort. “It’s not going to just consolidate; it’s going to shrink.”

Whether the bloodletting brings permanent changes to the economy is a matter of debate. But consumers will be deeply affected regardless. A leaner financial sector should lead to simpler, safer investment options as Wall Street reduces risk. But a smaller, more conservative financial sector also means smaller, more conservative lending. And that would lead to less available credit.

“We’re going back to the basics,” said Robert Howell, a finance professor at Tuck School of Business at Dartmouth. “The financial system was behaving like a bunch of drunks, and now it’s back to sobriety. Things got totally carried away.”

Through October, 130,000 financial jobs had been eliminated throughout the industry this year, according to employment firm Challenger, Gray & Christmas.

The elimination of 53,000 jobs at Citigroup — part of a 20 percent downsizing at the firm — will raise the number to around 180,000. That would be the industry’s biggest yearly contraction ever.

JPMorgan Chase & Co. is shedding 10 percent of workers at its investment bank, matching planned cuts at rivals Goldman Sachs Group Inc. and Morgan Stanley. State Street Corp. said it will cut 1,600 to 1,800 jobs, or 6 percent of the investment services company’s global work force.

The credit crisis is partly to blame. But so is the sector’s rampant overcapacity. The U.S. financial industry historically has roughly doubled in size during each major technological innovation — railroads in the late 1800s, autos in the 1920s and the tech boom of the 1990s, for example.

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