Kidder Peabody reduces work force, slashes costs

October 07, 1994|By New York Times News Service

NEW YORK -- Kidder Peabody & Co., General Electric's troubled brokerage subsidiary, announced a broad restructuring plan yesterday that could be the first step in a move by GE to sell the firm.

The plan, which was forced by sharp losses in bond and stock markets that have hurt every firm on Wall Street as well as by a trading scandal at Kidder, includes staff cuts of 10 percent -- 550 jobs -- cost reductions totaling $100 million and abandoning plans to move uptown to GE's headquarters.

In addition, Kidder plans to sell about $30 billion of its assets, including huge holdings in government bonds and other fixed-income securities. And Kidder will transfer $6.7 billion of its mortgage-backed securities to GE's financial unit, GE Capital Corp

Mortgage-backed securities had been GE's best moneymaker for the last several years but now are the source of losses as the bond market crashed this year.

Kidder officials said that they were in talks with a number of other firms, including PaineWebber, about selling parts of Kidder. But they said no deal had been reached.

And Kidder's top executives would not deny that the restructuring was in fact a prelude to the eventual sale or spinoff of the firm, which has become a thorn in GE's side.

Asked several times about GE's intentions, Dennis Dammerman, Kidder's interim chairman, and Denis Nayden, the firm's president, merely responded that they had told employees yesterday that, as Mr. Dammerman said, "the actions announced today will be interpreted in tomorrow's newspapers as dressing up Kidder for sale." They did not deny the possibility of such a sale.

GE sent both officials to Kidder this spring to assume control of the firm after it was rocked by allegations that Kidder's chief government bond trader had fabricated $350 million in phony trading profits.

The trader, Joseph Jett, denies the allegations.

As bond trading losses have mounted on Wall Street -- Salomon Inc. said yesterday it expects a loss of about $100 million for the third quarter -- other firms, including Lehman Bros., Merrill Lynch, Smith Barney and PaineWebber, also are cutting back. But Kidder has been struggling with other problems, too.

One is the trading scandal, which swept out Kidder's senior management and is still being investigated by the government.

Meanwhile, the firm's parent company has become exasperated with an acquisition that has brought unexpected embarrassment and fewer profits than GE expected when it bought Kidder in 1986.

This year's debacle in the bond market was the last straw. The bond market, which crumbled as interest rates rose, has been the overwhelming source of Kidder's profits in recent years.

During the spring, the market for mortgage-backed securities, which alone accounted for two-thirds of Kidder's earnings, virtually died.

"If there had been Joe Jett and a decent market or no Joe Jett and a bad market, you'd be talking to Mike Carpenter now," said Mr. Nayden, referring to the former Kidder chairman, who left after the scandal.

"But it's clearly the current market environment that is driving the actions we took today."

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