“Fidelity Investments, its business taking a hit in the stock-market tumble, said it would lay off 1,695 employees, or 5% of its work force,” writes John Hechinger in today’s Wall Street Journal.

“The nation’s largest mutual-fund company said the job cuts would focus primarily on market-sensitive operations, such as its big online brokerage unit. But Fidelity said it wouldn’t be dismissing any money managers or research analysts.”

“Fidelity’s assets under management, now $776 billion, have fallen 22% since their peak of $1 trillion on Aug. 31, 2000, a drop that will slash the company’s revenue and profit.”

“A Fidelity spokeswoman said the company’s work force swelled ‘when the market roared in the ’90s,’ and now the company needed ‘to adjust its resources’ to reflect the sharp decline.”

“Overall, the company’s employment will be down 12%, including attrition, after the latest job cuts from a peak of 33,369 in January 2001. In 2001, Fidelity announced layoffs of 1,114, or about 3% of its work force, mostly from its brokerage units, which had seen a sharp slowdown in trading. In the current round, about half the jobs eliminated will be in Boston, where the company is based, and suburban Marlborough, Mass.”

“Still, the cuts were about half what many analysts had been predicting, given the bear market. ‘It’s not a big number, by any measure,’ said Jim Lowell, editor of newsletter Fidelity Investor.”

“Because Fidelity, also known as FMR Corp., is closely held, it isn’t under the same profit pressure as publicly traded companies, which have cut their staffs far more steeply.”

“For instance, Merrill Lynch & Co., the U.S.’s largest brokerage firm, has cut about 17,400 people, roughly 25% of its staff, since the end of 2000. Discount broker Charles Schwab Corp. expects layoffs to total 9,100, or about 35% of its staff, from its employment peak at the end of 2000. Brokers and investment bankers, which must generate transactions to make money, have struggled more because they need a steady stream of deals.”

“Mutual-fund companies have the advantage of generating steady fees from their assets — albeit shrinking ones — even in a market rout. For example, Fidelity’s Boston’s rival Putnam Investments, a unit of insurance broker Marsh & McLennan Cos., has been struggling far more than Fidelity because of its huge bets on now-fallen tech stocks. But even Putnam has laid off only 288, or 5% of its work force, since April 2001, though the cuts included analysts and portfolio managers.”

“Mutual-fund companies also have benefited from sharp demand for bond and money-market funds — perceived as safe havens. But those investment vehicles provide lower management fees.”

“Fidelity also has taken steps to diversify its business by getting into lines of work that aren’t tied to the stock market. They include the administration of retirement plans, health plans and payroll. In 2001, Fidelity reported net income of $1.33 billion, down 39% from $2.17 billion in 2000. Revenue fell 12% to $9.81 billion. In 2001, more than half of Fidelity’s operating revenue came from businesses not connected to money-management fees.”

“Eric Kobren, executive editor of newsletter Fidelity Insight, said he expected Fidelity to cut back modestly, so it could use the market’s decline to build market share. ‘They have always been able to spend a lot of money in good times and bad to improve their market position,’ he said.”