Scrambling to reverse 18 months of sluggish profits, First Chicago Corp., Illinois` largest banking company, has begun a round of layoffs that will ultimately cut 1,000 people from its payroll.
The layoffs, part of an effort to pare $100 million in expenses from the company`s annual budget, is believed to be the largest staff cut at First Chicago, bank officials said.
While First Chicago`s action follows wholesale dismissals in the last 18 months at all the city`s other major banks, it overshadows all layoffs since the onset of the banking crisis except for Continental`s elimination of 1,019 jobs last year.
Banks all over the country have been reducing staffs to salvage profits jeopardized by bad loans and a weakening of their traditional base of corporate customers. Last week, the merged Chemical Banking Corp. and Manufacturers Hanover Corp. announced its payroll would be cut by 6,500.
Employees in some departments at First Chicago had received pink slips by the time the cuts were announced Wednesday. However, ”a lot of the decisions still have not been made” and the dismissals ”will be ongoing” until Dec. 31, said a spokeswoman.
”Everyone`s in shock even though the rumors have been going around for months. Reality hit very hard,” said one employee, who asked not to be identified.
”Most of us feel we wish we would know one way or another so all the anticipation would be over,” said another employee. ”Right now, I`m glad I don`t have a mortgage.”
The job cuts will come primarily from First Chicago`s Global Corporate Bank, which serves large corporate customers, and support staff serving the company as a whole, said Lisabeth Weiner, spokeswoman for First.
The Global Corporate Bank employed about 7,200 of First Chicago`s 17,500 employees at the end of 1990. The division, which also was the target of layoffs in November, consistently has lagged the rest of the bank in performance since First Chicago began reporting separate results for it in 1986.
First Chicago never has disclosed the extent of the earlier layoffs, but some bank employees said as many as 400 were dismissed then.
The latest staff reduction is part of an effort to realign the bank`s corporate business, moving it away from traditional loans and toward services based on fees, such as cash and risk management.
”Lending to large corporations just isn`t a profitable business,”
Weiner said.
Profit margins on corporate loans fell in the 1980s because large corporations began making greater use of the financial markets to borrow money, issuing securities instead of going to the bank. Now, because of the banking industry`s problems, some large ”blue-chip” corporations have better credit ratings than their banks, meaning they pay less for cash than the banks do.
Banks also have been facing new competitors. Large corporations can turn to non-banks, such as General Electric Capital Corp., to borrow money.
First Chicago made the staff cuts after 18 months of weak earnings. Though the $48 billion bank reported a $57 million profit in the April-June quarter, the earnings are considered low by investors.
”The revenue-expense equation is out of whack, and they have to get it back,” said James McDermott, a banking analyst for Keefe, Bruyette & Woods of New York.
”We`re in an environment where revenues are slowing,” McDermott said, but the $100 million projected savings should redress the balance ”on the assumption revenues remain the same or get better.”
The city`s financial circles have been anticipating large layoffs at First since last year, but the decision was completed at the beginning of this week, immediately after senior executives returned from their annual strategic planning retreat, Weiner said.
Weiner would not give any details of the positions to be eliminated, saying only ”across-the-board is the best I can say. A lot of the decisions haven`t been made.”
Some employees said it appeared the bank was giving notice primarily to support staff, putting off decisions on which lending officers would be dismissed.
Chairman Barry F. Sullivan said in a statement: ”Three words describe banks that will be market leaders in the `90s and into the next century: lean, flexible and aggressive. We expect to be one of those leaders.”
Neither Sullivan nor other top bank officials would discuss the dismissals.
The company will take a $30 million to $40 million charge against its third-quarter earnings to cover the cost of the restructuring and anticipates it will feel the full benefit of the expense reductions beginning in 1992.
News of the layoffs made little impression on the New York Stock Exchange, where First Chicago shares closed at $24.75, up 12 cents.
