Thursday, December 4, 2008

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State Street to cut up to 1,800; Wellington also confirms layoffs

State Street is laying off just weeks after receiving $2 billion as part of the Treasury Department's plan to loosen lending.

Two more Boston financial companies disclosed large rounds of layoffs yesterday, the latest in a wave of cuts sweeping the local investment industry in the wake of plunging stock markets.

State Street Corp. said it plans to eliminate 1,600 to 1,800 positions over the next several months, or about 6 percent of its workforce. Separately, Wellington Management also confirmed a cut, reportedly 10 percent of a 2,100-person workforce.

Fidelity Investments is in the midst of eliminating 3,000 jobs, and MFS Investment Management is cutting about 90. The Chicago staffing firm Challenger Gray & Christmas reported yesterday that financial firms cut 91,356 jobs in November, the largest monthly reduction since September 2001, when 96,333 positions were eliminated.

State Street is initiating the cuts just weeks after receiving $2 billion in taxpayers' funds as part of the Treasury Department's plan to loosen squeezed lending markets by loaning capital to the financial sector. The government funds came with few restrictions, although government officials urged the recipients to use the money to increase lending. State Street, however, is not a retail or investment bank; much of its business is providing services, such as recordkeeping, trade settlements, and the like, to the money-management industry. It does have an investment management arm, too.

Steve Adamske, a spokesman for Representative Barney Frank, the Newton Democrat who spearheaded the financial industry bailout in the House of Representatives, said he didn't have enough information to comment directly on State Street's actions.

But Frank hasn't criticized layoffs in the past by other companies that received government funds, including Citigroup Inc., and Adamske said the first priority of the money should be to encourage bank lending.

"We sincerely hope the funds provided by the government will go for the stated purpose in the act, to provide liquidity in the financial system and get lending moving again," Adamske said.

State Street spokeswoman Carolyn Cichon said it would be "apples to oranges" to compare the public cash infusion to the layoff decision, since the government money was meant to boost the company's capital level rather than cover operating costs. "Our core business remains extremely strong," she said.

The firm emphasized the job cuts would help its financial position. "It is important for State Street to continue to deliver consistent earnings growth, particularly during this difficult environment," State Street chief executive Ronald E. Logue said in a statement. "Taking this action increases our ability to do so."

State Street employed 28,900 people worldwide as of October, about 13,900 in Massachusetts. Cichon said she couldn't detail how many local jobs would be eliminated.

The reductions will mainly occur among middle and senior managers, the company said, instead of among lower level positions that provide customer service. About two-thirds will be at its North America operations, with the rest in Europe and Asia, the company said.

State Street said severance benefits and other costs will lead to pretax charges of $325 million to $350 million, or 51 to 55 cents per share. The action will save as much as $400 million annually, it said.

Separately, Wellington Management has eliminated 10 percent of its workforce, the industry publication Pensions & Investments reported yesterday, citing an unnamed source.

A company spokeswoman wouldn't confirm the figure but said that given the market's recent turmoil, the firm has made efforts to cut expenses.

"Included in these efforts was the difficult decision to reduce our workforce, which has been implemented over the last several days," Wellington said.

"In doing so, we focused on eliminating work and restructuring positions where the change would have minimal impact on our investment and client capabilities."

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