The broken dreams of Wall Street

Raj and Nita Godhania are drinking Nescafe in their one-bedroom apartment in Princeton, New Jersey.

Valentine cards are taped to otherwise bare walls, and a stack of cardboard boxes towers over the TV.

Their daughters, 12 and 7, have been helping to pack.

Merrill Lynch fired Raj on January 22 after he'd worked on the bank's technology systems for 10 years. He got a promotion in 2006, sold his house in London, gave away the dog and moved his family to the US.

Now, he's scrambling to leave before his nine weeks of severance runs out and his L-1 work visa - his right to be in the country - is void because he's out of a job.

Half a dozen calls to Merrill in three weeks - some furious, some teary - have yielded nothing, says Nita.

The New York-based firm so far has refused to pay the family's moving expenses, buy plane tickets or help figure out how to let the children finish the school year, they say.

Nita can't work without a permit, and Raj, 45, has little time to find another company to sponsor him.

The two British citizens don't qualify for US unemployment benefits.

"Merrill Lynch left us on the streets," says Nita, 39.

"I'm just so angry and scared. What the hell is going to happen to us?"

The shakeout in global banking has untethered more than a quarter of a million people, most of them in New York and London, who thought they were in secure, well-paying jobs.

Some were investment bankers and traders who, with cheap credit and a gambler's view of risk, raked in millions of dollars in annual bonuses over the past five years.

Others, like Raj Godhania, greased the wheels at companies once seen as pillars of corporate strength, such as Citigroup, UBS and Merrill Lynch.

All are now displaced, forced to reflect on their fall and to find their way in a job market where the biggest US and European banks may spill tens of thousands more workers before the carnage is over.

By some measures, these folks are lucky: They're well educated and have some money to fall back on.

Still, bankers are struggling with a plunge in prestige - and little sympathy - after a decade-long orgy of ramping up leverage and flogging sub-prime debt that has left the world's economy in tatters and taxpayers with the bill.

In London in February, demonstrators hanged a mannequin dressed in a tie and bowler hat from Marble Arch.

"There's a lot of finger-pointing going on now," says Neil Servis, 40, the former head of Morgan Stanley's collateralised-debt-obligation business in Europe, who lost his job in September.

"Everyone is targeting bankers."

Public ire tends to be focused on the perks of those at the top, those who got the biggest bonuses.

Managing directors who ran sales and trading divisions at major firms could have earned $10 million a year or more in boom times, says Regina Glocker, a partner at Exchange Place Partners, a New York executive-search firm.

Mortgage traders or portfolio managers may have made $2 million. Still, legions in the middle ranks aren't immune from criticism. Or angst.

At job fairs in New York, bankers clutching leather folders filled with resumes wait in line for hours for five-minute interviews with potential employers or headhunters.

Michael Migliaccio, a mortgage trader who worked for 11 years at RBS Greenwich Capital Markets, a subsidiary of Edinburgh-based Royal Bank of Scotland Group, was fired in December with seven others on his trading desk, he says.

He's painting the inside of his house in Connecticut, saving the US$3000 ($5326) his wife planned to spend on the job, and is worried about paying for his two teenagers' college education.

Migliaccio, 44, has sent out his resume and attended a couple of networking sessions. No luck.

"With so many people out of work, you don't even get the callbacks," he says. "It's discouraging."

Yet hardly surprising, given the balance sheet blowups of the past two years. Financial institutions worldwide have racked up more than US$1.2 trillion in losses and writedowns since mid-2007, according to data compiled by Bloomberg.

Lehman Brothers Holdings went bankrupt in September. Bear Stearns and Merrill Lynch were swallowed by commercial banks. And financial firms on both sides of the Atlantic, including Goldman Sachs Group and Lloyds Banking Group, have received billions from their Governments.

The US has plugged US$173 billion into American International Group, once the world's largest insurance company, and propped up Citigroup three times.

The British Government is now set to own 75 per cent of RBS, Migliaccio's former employer.

The system is convulsing, says Charles Geisst, author of Wall Street: A History and a finance professor at Manhattan College. Most of the people who have been turned out of the banks are now, en masse, going to have to find something else to do.

"The jobs are not coming back," he says. "This time, it's permanent."

The jobs have disappeared because the "transaction bubble" has burst, Geisst says.

From 2003 to '07, banks hustled for short-term profit through transaction-based fee businesses, including packaging mortgages into debt securities and selling them to investors.

The banks built up departments such as prime brokerage, which clears trades for hedge funds. They hired thousands of people to work in those units, from bankers to back-office programmers and accountants.

In London alone, industry jobs ballooned by almost 50,000 to 353,000 in 2007 from '02, according to the Centre for Economic and Business Research.

The job cuts began as the markets turned in mid-2007. Since then, financial firms worldwide have shed 282,000 jobs, about 5 per cent of the total industry workforce, Bloomberg data show.

Bull market hustle has vanished on both Wall St and in the City of London. For Sunil Rally, who has been selling newspapers, gum and cigarettes at the corner of Wall and William Streets in Lower Manhattan since 1991, sales are down 30 per cent this year.

"Every day, business is less than the day before," Rally says. He points across the street to where Mangia, a once bustling takeout panini and salad shop, cleared out a few days earlier.

"It used to be busy," he says. "But so many people are losing jobs."

The two cities gorged on revenue from rich bankers. Real estate values jumped to record highs.

In London, 40 apartments overlooking Hyde Park had sold for an average price of 20 million ($52 million) by early last year. Financial services accounted for 11 per cent of British income tax and 15 per cent of corporation tax in the tax year ended on March 31, 2008, according to a report commissioned by London Mayor Boris Johnson.

That's a total of 42 billion - more than Britain's schools budget.

Those days are over. On Wall St, where the average pay at the five biggest New York-based securities firms in 2007 was US$353,000, a 44 per cent plunge in bonuses last year will cost New York State US$1 billion in lost tax revenue, according to the Office of the State Comptroller.

In the US, the share of gross domestic product coming from finance may tumble to about 5 per cent from more than 8 per cent in 2006, says Richard Florida, director of the Martin Prosperity Institute at the University of Toronto's Rotman School of Management.

"The idea that so many people could move money around and make so many millions seemed economically unreasonable," he says. "Moving those people on to other pursuits is going to be much better for our economy."

There will still be bankers, of course. Well-connected dealmakers are jumping to so-called boutique firms such as Moelis & Co, the New York investment bank founded by former UBS executive Kenneth Moelis, and Quattro Partners, the London investment adviser set up by former Lehman Brothers banker Michael Tory.

Some financial workers who have been fired will be hired back when the economy rebounds. For them, and for those who still have jobs, compensation may never be so grand. At New York-based Morgan Stanley, as much as two-thirds of pay is now in deferred stock and cash.

Credit Suisse is using about US$5 billion of its most illiquid loans and bonds for bonuses to be paid out over five to eight years. With rival UBS, it's forcing employees to allow the bank to try to take back cash bonuses if they leave the firm or are fired for cause. UBS calls this a malus clause, after the Latin word for bad.

Bankers used to feel like masters of their own destinies.

Times have changed. In March, Morgan Stanley ordered London staff to start paying to use the firm's gym and to front corporate expenses, including hotels and meals, out of their own pockets. Bankers and traders compensated in shares have also watched their net worths crumble.


As fired bankers figure out what to do, those hanging on at beleaguered banks don't feel so fortunate. They've lost so many colleagues that the work is more of a grind than ever, they say. And the payoff - a lucrative career at a stable company - has vanished. They're beset with anxiety as everyone wonders who's next.

Raj Godhania felt that stress for months in Merrill's Hopewell, New Jersey, office. He began working late nights and weekends to keep up when his group was trimmed to three people from about nine, he says. The pressure rose when Bank of America took over Merrill on January 1. "Every Monday, you'd see more empty cubicles."

Axing workers is tough from the other side of the table, too. In banking, the cuts are so deep that many handing out the pink slips have lost their own jobs.

When Servis, the former Morgan Stanley CDO executive, joined the firm from Deutsche Bank in London in September 2007, he was expecting to expand his structuring and syndication team of about 15.

Instead, one of his first tasks was to eliminate jobs already targeted by management. After six months, his team had been halved.

In April last year, Morgan Stanley further pared European structured finance, and in September, Servis lost his job. Now, even the managing director who told Servis his job was being eliminated is gone.

"It doesn't look like I will ever be doing the same job again," Servis says.

He's looking for a new position in the City and spending part of the week at Crowlands Heath Golf Club in Essex, just east of London, where he parlayed his Morgan Stanley earnings into an ownership stake.

While many politicians and taxpayers have blamed banks that sold CDOs and other structured products for causing the financial crisis, Servis says customers were demanding higher returns.

"Investors were taking more risk than they should have," he says. "You talked to a client about a product that yielded 8 per cent, and they said they wanted a yield of 9, 10, 11 per cent.

"I could tell them why that higher-yielding product was more risky, but investors were searching for yields."

Now, as he helps sort out the golf club's finances and pitches in by scrubbing down the kitchen, he finds himself on the other side of the banking world, trying to restructure the club's 275,000 debt.

"I keep saying 275 million, forgetting it's only in thousands," he says.

Janegail Orringer is also thinking smaller. She lost her job as a senior analyst of high-yield credit strategies at New York-based hedge fund Halcyon Asset Management on December 18. She says she doesn't expect demand for her skills to revive anytime soon and has taken on a couple of short-term consulting jobs.

She's also rethinking her household budget. That means fewer taxis and a cheaper hair salon.

Orringer has dumped the US$90, once-a-week Pilates class and a plan to renovate her daughter's room in the Upper West Side apartment she shares with her husband, who teaches economics at the University of Pennsylvania's Wharton School.

The regular Sunday baby sitter is gone too. The full-time nanny stays. She's also ordering cheaper cuts of meat from the butcher:

No more veal chops.

It's tough to live in New York City on much less than US$400,000 a year, Orringer says, especially if a family has two kids in private school, where tuition can exceed US$25,000 a year.

"I look around at my neighbours, and I wonder, 'How do they make it?"' she says. "We have savings, although if I remain unemployed for several years, we'll have to dramatically change our lifestyle."

- BLOOMBERG