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But in the month before Black Monday, some 1,100 Wall Streeters, including many with salaries in the six-figure range, suddenly lost their jobs. In a startling move that rocked the financial community, prestigious Salomon Brothers announced it would stop trading municipal bonds, and 800 employees were told to clean out their desks. Kidder Peabody followed suit by letting 100 bond traders go. Said Samuel Ehrenhalt, New York regional commissioner for the Bureau of Labor Statistics: "What happened at Salomon is a portent of things to come."
What had happened was, in a word, overexpansion. "We grew much too rapidly," concedes Robert Salomon, a managing director of the firm. Salomon's staff jumped 40% as the company added 2,300 people in the past twelve months. The rapid buildup helped entrench Salomon as the leading municipal-bond trader just as rising competition caused profits in that area to fall. Other big firms were suffering too. Merrill Lynch lost $275 million last spring when a slump in bond trading left the company with a mountain of unsold inventory. The price collapse gave Merrill Lynch a $145 million loss for the second quarter. First Boston admitted to losses of $100 million.
The booming mergers-and-acquisition field, focus of so much stock-market frenzy in the '80s, was also slipping into trouble. Last year the largest securities firms made an estimated third of their profits by financing merger mania. Butinterest-rate hikes and proposed anti-takeover legislation in Congress hobbled the pace of takeovers. Fearing a sharp fall in business, many houses were considering staff cutbacks. Among them: E.F. Hutton, First Boston and Prudential-Bache.
Last week's crash deepened the investment firms' concern by forcing corporate raiders to halt attacks on major takeover targets like Dayton Hudson and Gillette. The stock of such companies was suddenly worth far less than the raiders were offering. But at the same time, the drop in prices raised the possibility that takeover artists might spot new target shares that are now a bargain. Wheeler-dealers like T. Boone Pickens, Carl Icahn and Irwin Jacobs were said to be on just such a prowl.
Black Monday worsened the problems of so-called risk arbitragers, who buy stock in targeted takeover companies in the hope that they can sell the stock to a higher bidder. Monday's crash wiped out many of their assets. Among those severely affected was Abelow Ihasz & Co., which had 45 employees at the time of the crash. "We're not going to be trading until the market stabilizes," said Robert Levine, a general partner of the firm. "More than that I can't say." Recalled George Kellner of Kellner, DiLeo & Co., which sustained unspecified heavy losses: "It was humbling and humiliating. Someday I'd like to learn my lessons in an easier way."