YUPPIES ON THEIR UPPERS

Now that the bottom has fallen out of the market, there may well be a savage culling of City whizz-kids.

Jonathan Gregson meets some of the first casualties

IN THE wake of the worst stock market crash this century there are now doubts about the solvency of some City firms. A lot of highly paid jobbers, brokers and equity salesmen may soon find themselves out on the street. But they will not be the first. Redundancies have already hit their colleagues on the fixed-interest side who deal in Eurobonds, commercial paper and gilts.

Eurobond dealers with time on their hands are no longer a scarce commodity. One who has recently been made redundant was putting a brave face on it as he sipped his way through a bottle of Petit Chablis at a favoured watering hole. 'At least I now have the time to read,' he mused. 'I ha- ven't read a book in years, apart from trashy paperbacks on holidays, of course.'

The stream is shrunk — the pool is dry, And we be comrades, thou and I; With fevered jowl and dusty flank Each jostling each along the bank;

And by one drouthy fear made still, Forgoing thought of quest or kill.

But the conversation turned to the need to keep a competitive outlook even when one was between jobs, and the opportunity passed.

Yet, Kipling's story about how Fear came to the Jungle People seems particu- larly apt now that high fliers in the City jungle are looking over their shoulders and wondering if the latest round of cutbacks is just the beginning. The younger ones who have nothing but double-breasted suits in their wardrobes have no experience of a bear market. And they are getting worried at what they see going on around them: really worried.

The wholesale cutbacks in staffing levels have thus far come mainly from American houses. Shearson Lehman has sacked 150 people in its London office, Chemical Bank is trimming back its UK workforce by 170, while the mighty Salomon Brothers is handing P45s to 150 employees at its glossy new European headquarters hard by Victoria Station. But these high-profile shakeouts have obscured the steady trickle of redundancies from other houses, many of them affecting people in the London- based Eurobond market and other markets in borrowed money.

These are markets that went through their equivalent of Big Bang long before the much publicised deregulation of shares and gilts last October. The comparatively liberal conditions prevailing in London encouraged the rapid growth of wholesale money markets and a proliferation of new ways of packaging debts. A boom ensued, attracting more and more of the big play- ers, first the Americans and then the Japanese and Europeans. A whole new industry arose in the Square Mile. In terms of sheer money, it dwarfed the traditional, domestic markets in shares and gilts. And it created thousands of highly-paid jobs, most of them going to young Britons who had scant respect for the constraints and traditions of the City of their fathers.

By the time that Big Bang arrived, many of these markets were already looking distinct- ly mature. Previously, the ever-growing num- ber of players had been accommodated by in- creasing volumes of business. But competi- tion eroded margins, and in a crowded field only those willing to run loss-leaders could gener- ate big volumes. Over- crowding has also taken its toll in the gilts mar- ket, where the number of players expanded from four to 26 over- night as a result of de- regulation. From the outset it was apparent that only a handful of those involved would be able to run their gilts operations at a profit.

Nonetheless, the spate of corporate posturing before Big Bang raised competi- tion for the requisite skills and experience. Salaries and bonuses went spiralling up- wards. The overheads were enormous, and could not be borne indefinitely. And while it may seem shocking to outsiders that young men in their early twenties should be paid six figures salaries with subsidised mortgages and company Porsches on the side, there is an undeniable logic in paying a team £1 million if they are generating revenues of £5 million. Yet it is equally logical to cut them out if their markets are contracting and they start turning in consis- tent trading losses. When you are dealing with such intangible products, it does not take much to close down the factory. You just clear the stock off your books and switch off the screens.

Of late, several of the newfangled mar- kets have been drying up. The first warn- ings came late last year when the Perpetual Floating Rate Note market lost liquidity. Eventually, there were only two players left passing the parcel to and fro, and as this scarcely constitutes a true market, the whole show ground to a halt. There are mutterings about junk bonds having lost their shine, many of the desks dealing in exotic currencies have been closed down, and some expensive cries of pain have been coming out of the gilts trading rooms over the summer.

What is happening in the City is similar to what happened throughout industry and commerce in the early Eighties. The prob- lems arising from overmanning and over- capacity are being addressed. The principal difference lies in the fact that it has occurred while the rest of the economy is powering ahead. That, involving as it does people going from salaries of £150,000 plus to zero overnight, makes for a macabre spectacle.

What happens, then, to a yuppy on his uppers? I first encountered this phe- nomenon when sharing a bottle in the Greenhouse with two friends, both of whom had been in the wine trade. One has since become a bond salesman in a fairly blue-blooded merchant bank, and he was discoursing upon how things were getting tough when a recently sacked colleague who had run a fixed interest book turned up. A perceptible chill descended, as no one wanted to mention the unfortunate event. But it was clear that Mr ex-Fixed Interest was not bearing up under the strain.

Apart from looking vaguely green and sweating a great deal, his hands were shaking so much that when he held out his glass for some wine nearly half the contents of the bottle went all over the floor. His conversation, such as it was, came out in fits and starts, a strange amalgam of positive noises and the usual market jar- gon. He was now in financial futures, and had just negotiated a rather better car than his new employers had initially offered. The fact that he was being paid purely on commission did not worry him, he said, as that was the industry norm and it opened up even bigger potential earnings. He then left as abruptly as he had arrived.

Conversation soon turned to the sad fate of our shaky friend. It transpired that although the official reason for his sacking was persistent absenteeism, his real un- doing was running up large debts on the company plastic while simultaneously mak- ing some serious trading losses.

`He overtraded massively,' the bond salesman confided. 'On days when there was frantic movement in the market he traded 60 or 70 times. None of it was retail. He got stuffed rotten. His main problem was that he was determined to be a big boy. and he ended up looking a very silly boy indeed.'

His new job in financial futures turned out to be with a rather dubious outfit, described as 'three men, a dog, a tele- phone, and the Department of Trade knocking on the door'. Without a fixed salary he was having problems with his now unsubsidised mortgage. Determined to participate in the property market, he had geared himself up to the hilt with a 95 per cent mortgage and borrowed the balance from his bank. The rates and other running costs of his six figure investment in Isling- ton came as something of a shock, for previously he had always lived with his mother. His lifestyle remained unaltered or, if anything, became even more expen- sive, as in the meantime he had fallen in love. That meant yet more champagne and dinners at the Savoy. It also entailed lying prodigiously about his salary to maintain both his credit and his self-esteem.

He has since left the financial futures business and was recently spotted luiking around the DHSS offices in Islington. He now holds court in the Island Queen rather than at the American Bar. The yup- piephone has been sold to an estate agent, the Rolex traded in for a £25 imitation, and he has taken to wearing more sensible footwear, with rubber soles moulded on to water-resistant plastic uppers.

City headhunters, who are currently being bombarded with phone calls from the people whom Salomon and Shearson Lehman feel they can live without, are keen to point out that most Puppies (pre- viously upwardly mobile professionals) find another job soon enough. Flexibility is the key word. They will probably have to accept substantial cuts in salary and move to financial products that lie outside their previous expertise. Salesmen are likely to do better than traders, though anyone who can bring good contacts with him is liable to find a welcome mat sooner than the others.

It is interesting to note the priorities of

`This is the office Romeo. I'm the office Othello.'

yuppies who have hit the street bottom first. Property is paramount. A couple of sacked Eurobond traders have recently rented out their flats in order to cover the mortgage and moved in as lodgers with a friend, who is using their rent to pay off his mortgage. They have curtailed their lifes- tyle and one, at least, has a job offer outside the City. But then, unlike our man in the Island Queen, neither had blotted their copybook. Their fall from grace was the result of market forces and strategy decisions taken in boardrooms in New York.

There lies another distinction in the prospects of traders on the shelf. Those who are young and, above all, graduates, stand a far better chance of being re- employable. The big American houses are understood to have relocation facilities for former employees, but employment con- sultants reckon that it will be the graduates who benefit most from this service. The Lifo (last-in first-out) syndrome may mean that recent recruits who have not clocked up enough flying hours to qualify for the big volume markets will feel the brunt of the cutbacks. But it is widely felt that they have higher 'survivability' than burned-out traders who have done nothing else for the past ten years, particularly if their market has dried up. The same applies to salesmen who have not adapted fast enough to changes brought about by Big Bang. They find themselves subject to discreet sniping from Young Turks who have joined up since deregulation.

The Lifo youngsters can at least bounce back. I know of one bond trader who moved to Lloyds when the team at First Interstate was disbanded. When Lloyds promptly closed down its Eurobond and gifts operations, he moved over to Klein- worts. Now it seems that Kleinworts are vulnerable after revealing large trading losses in their recent accounts.

Lifos may suffer a financial shock, but they can more readily retain their self- esteem. They tend to have a closer coterie of friends left over from their university or school days. The grizzled veterans (all of 35 years old) have lost flexibility. The Fifo contingent (first-in first-out) also tend to have more serious domestic commitments.

Now that the equity market has col- lapsed, these are the ones with most to lose. It is difficult to see how they could find anything outside the City, and even if they do it would be on a fraction of their current salaries. Yet that was always part of the 'high risk, high reward' ticket. Those with sufficient capital will doubtless move to Herefordshire or go around the world. As for the others — with their six-figure mortgage on a nicely subsidised two per cent, the elder son in his second year at prep and down for as good a public school as prospective earnings permit — those are the ones who are well and truly stuffed. But that, as Kipling might have said, is another story, 0 best beloved.