eliminate the vast majority of its municipal bond operations, citing souring business conditions and "the commodity-like nature" of the overall muni market.
"We will wind down our trading and underwriting activities in an orderly fashion," said Catherine M. Conroy, a Donaldson Lufkin spokeswoman. "Senior staff members will work with clients to transfer ongoing business and complete transactions that are currently in progress."
The firm ranked 19th nationally as senior managers underwriting $1.2 billion in bond issues last year, according to Securities Data Co. The company comanaged $15.3 billion in 1994, ranking 12th overall.
But like many municipal market firms, the firm has felt the crunch of a dramatic decline in issuance, and lower profit margins associated with underwriting municipal debt.
In recent years, investment bankers have groused that the margins they earn have declined so much that underwriting has become barely profitable.
With the dramatic decline in municipal issuance in 1994, and little hope for improvement in 1995, many market firms are rethinking their commitment to the market.
As part of the move, Donaldson Lufkin laid off 124 employees, including 99 bankers, traders, salespeople, and support staff in New York. The company also laid off about 25 executives from its branch offices around the country.
The cuts included William J. Mulrow, managing director of the firm's public finance division. Only last week, Mulrow denied widespread speculation that the firm would eliminate its municipal department.
Mulrow said the firm had made some staff reductions in a cost-cutting effort, but was committed to the business.
But yesterday afternoon, Donaldson Lufkin had a different story to tell. In a press release, the firm said it "has decided to wind down its public finance business and will cease underwriting and institutional trading of municipal bonds."
The firm, however, will continue to provide municipal bond sales and trading for individual investors.
In a statement, Theodore P. Shen, chairman of the firm's capital markets group said: "The public finance division was generally profitable in recent years, but narrowing spreads and the increasingly commodity-like nature of the business have prevented it from earning the returns we expect and achieve in our other businesses."
"Regrettably, we do not foresee a reversal of those trends, nor sufficient contribution to other parts of the firm to support such a low return," Shen said.
