Reactions by E. F. Hutton employees in Southern California on Thursday to their company's proposed $1-billion takeover by Shearson Lehman Bros. ranged from anxiety about possible job losses to excitement about stronger financial support. But one emotion seemed to be shared by many: sadness at the loss of the 83-year-old Hutton as an independent firm.
"It's sad to see the name of Hutton go," said one Hutton employee in the downtown Los Angeles office, who, like most interviewed by The Times, asked not to be identified. "I never thought our firm would be absorbed by another."
"A lot of people have been here over 10 years," said another. "To them it's really like a family."
The reminiscing came amid signs that Shearson and Hutton have already begun cutting payrolls to eliminate duplication while still making the combined firm the nation's largest brokerage concern.
Even as the ink on the merger accord was barely dry, Hutton's small force of investment bankers and traders in Los Angeles already are undergoing performance reviews by superiors that would determine who is kept and who will be let go, employees said. Some decisions may be made within the next two or three weeks, they said.
"It's going to be like social Darwinism," said one Hutton worker. "The strongest are going to survive."
Investment banking and trading, not Hutton's strong suits, are expected to be areas of significant paring by Shearson. Shearson Chairman Peter A. Cohen told reporters Thursday that there would inevitably be duplication in the combined company, resulting in an unspecified number of layoffs at both firms, although estimates that 5,000 people would be fired were exaggerated.
Hutton employees also speculated about branch closures, as many Hutton and Shearson retail brokerage offices are located near each other throughout Southern California.
Meanwhile, some brokers at both firms began to test the job market, worried about losing their jobs or, more likely, fishing for better offers elsewhere. Retail brokerage is Hutton's strong suit, and most of the firm's 6,500 retail brokers--including an estimated 700 in Southern California--are expected to be retained. But Shearson already is facing stiff competition from rivals trying to hire some of Hutton's top salespeople, industry officials say.
"Everybody's talking to Hutton brokers now," said Richard Kronman, a partner at Zander Associates, an executive recruiting firm specializing in the brokerage industry. He noted that several firms are "aggressively hiring" now, while rumors are circulating that Shearson may offer year-end bonuses of as much as 20% to keep key Hutton brokers.
Some of Shearson's brokers, already said to be paid slightly less than Hutton's, may resent such offers.
Unfortunately for Shearson and Hutton employees, the merger will come as the brokerage industry faces a period of consolidation and re-examination stemming from the Oct. 19 stock market crash and subsequent bear market. Both firms already were in the process of cutting costs even before a merger was agreed to.
The biggest cuts in Hutton's 18,000-member work force are likely to occur on the East Coast, where there is the heaviest concentration of investment bankers, traders, analysts and back-office personnel--among those most likely to lose jobs.
The biggest cuts are likely to be among Hutton's 5,000 or so back-office personnel, who process the trades generated by brokers and others. A new state-of-the-art data-processing facility at Shearson is said to be capable of handling Hutton's business without adding new back-office employees--making pink slips for most of Hutton's back-office workers largely inevitable. About 50 of those back-office employees are stationed in Hutton's downtown Los Angeles office, employees said.
"It's hard to sympathize with the investment bankers who may lose their jobs," said one Hutton employee, noting their six-figure salaries and role in promoting mergers of other companies. "But the people who really get hurt are the little guys, the operations people. A lot only have high school educations, a lot are single parents. If the whole securities industry shakes out, it won't be easy for them to find something else."
However, amid their sadness, many employees also expressed optimism that the combined company will be stronger and provide more products and research for clients. The merger also would put to rest concerns about Hutton stemming from its guilty plea in 1985 to 2,000 counts of mail and wire fraud in connection with a check-overdraft scheme.
"On the whole for the customer, it's a win-win situation," said a Hutton broker in Orange County. "Any doubts about our financial viability should be dispelled."
"It's very sad to see it happen, but from an objective standpoint, the firm felt it was not large enough to compete," a Hutton manager said. "This is a good long-term solution."
"It's a good merger," said another Los Angeles employee. "We're a great firm on our own, and we'll be a great firm under Shearson."