March 26, 2008 / 1:56 PM / 9 years ago

Bankers scale back on luxury as job cut fears grow

<p>A man displays a bottle of fake Champagne in the port of Antwerp January 8, 2008. REUTERS/Francois Lenoir</p>

NEW YORK (Reuters) - Less than 48 hours after news broke that Bear Stearns & Co Inc BSC.N would be bought for a fire-sale price, the wives of two of the firm’s senior investment bankers called their high-end interior designer to cancel their contracts.

It’s yet another sign that some bankers are slashing spending on luxury items as they fear for their jobs and the value of their firms’ shares.

“We only had about $50,000 worth of final touches (to go), and the wife called me last week and said stop,” said interior designer Darren Henault, whose work has been featured in such magazines as Vanity Fair and Elle Decor.

“She said that they’re not poor, and are never going to be poor,” Henault said, “but their capacity for discretionary income for things like window valances just went out the window.”

Bear Stearns’ near-collapse and deal to sell itself to JPMorgan Chase (JPM.N) further unnerved a financial industry already jittery after losses from subprime loans and the U.S. economic decline undermined balance sheets at Citigroup Inc (C.N), Morgan Stanley (MS.N), Lehman Brothers Holdings Inc LEH.N and other major investment banks.

In the first two months of this year, U.S. financial services companies cut more than 20,000 jobs, according to a survey by Challenger, Gray and Christmas. JPMorgan, for one, is expected to lay off a third or even half of Bear Stearns’ 14,000 employees when it takes over the smaller bank.

The wife of the second Bear Stearns banker had planned to spend about $300,000 on the couple’s apartment in the next three months, Henault said. But despite losing these projects, he remained upbeat, saying he had enough deep-pocketed clients to keep him from feeling the impact of Wall Street’s troubles.

Milton Pedraza, CEO of research firm Luxury Institute, said he had heard of people putting summer homes on sale right after the Bear Stearns news broke. But spending on yachts, jets, watches and luxury apparel had been weak for a while, with bankers reluctant to open their wallets in case of more layoffs and reduced expense accounts, he said.


Nightclubs and restaurants, which depend on young traders’ and bankers’ extravagant nights out, are also feeling a chill.

Tom Martignetti, who owns the brasserie Bar Martignetti and a nightclub in downtown Manhattan, said sales of champagne and vodka bottles had tumbled about 25 percent since last year.

To secure a table, a New York clubber must buy three or four bottles at $300 to $550 each.

The financial sector accounts for about 90 percent of these sales, which make up the bulk of a nightclub’s revenue, Martignetti said.

And it is now easier to get a table at a top restaurant at the last minute midweek, due to the decline in reservations from the financial industry.

“The nightlife and restaurant industry is based on celebrating,” Martignetti said. “And a lot of my customer base has lost their jobs or are worried about losing their jobs -- so nobody is celebrating.”

Caterers are also finding Wall Street firms more reluctant to book celebrations well in advance.

“There’s a concern about sending the right note, not looking at frivolous -- like a champagne bar or an esoteric theme -- at a time when things are pretty bad for the banking industry,” said Joan Steinberg of Match Catering, an event planner for financial clients.

“Usually catering for summer associate programs are in place in February,” she added, “but not this year.”

To be sure, consumers with the highest net worth are more protected from an economic slowdown due to the diversity of their business interests. Luxury car dealers and other businesses that cater to the highest echelon said they hadn’t yet seen a dramatic decrease in demand, even as “single-digit millionaires” keep a closer eye on expenses.

Still, businesses around Bear Stearns’ midtown Manhattan headquarters, including an Audi car showroom on Park Avenue, said fewer bankers were browsing on their lunch hours.

Daniel Crowley, a sales associate at Charles Tyrwhitt in the Bear Stearns building, said foot traffic past the high-end suit retailer had diminished, and traffic is a “huge” component of sales since an attractive window display can lure customers.

With the job market tough, financial sector employees may be more concerned with sorting out their future than with spending.

Asked whether he was looking for a new job, a Bear Stearns staffer replied: “Yeah, me and 10,000 other people. It couldn’t have come at a worse time.”

But Kenneth Kleinart of Park Avenue’s Floral Impressions said he hadn’t yet seen any slowdown in flower orders.

“A few people have ordered flowers (for Bear offices) just to cheer them up,” he said. “They say it’s like a morgue over there.”

Additional reporting by Chris Reiter; Editing by Lisa Von Ahn

Our Standards:The Thomson Reuters Trust Principles.
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