Wall Street Professionals Lose Big By Holding Shares In Own Firms

Wall Street employees, who dispense financial advice to individuals and companies, aren’t following a basic investing tenet with their own money: diversification.

Bloomberg reports that employees at the five largest Wall Street firms saw the value of company stock in their 401(k) accounts, sometimes the biggest holding of those plans, decline more than $2bn last year, according to annual filings. Those losses don’t include shares received as bonuses.

The 2001 collapse of Enron Corp. led to warnings that tying retirement funds to an employer’s stock could be more crippling when a company fails, resulting in the loss of both a nest egg as well as a source of income. Traders and bankers felt the pain of last year’s decline in revenue from job cuts and lower bonuses in addition to the shrinking of their 401(k) accounts.

'You’re already relying on that company for your job, your income, benefits and everything else', said Chris Baker, co-founder of Carmel, Indiana-based Oaktree Financial Advisors Inc. 'It’s not just another stock. It can magnify the impact on your personal finances if your portfolio takes a beating and your employer isn’t doing well'.

Current and former Morgan Stanley employees, who receive company shares to match their 401(k) contributions, held 24% of retirement assets in the firm’s stock before last year’s decline, the highest percentage of any of the banks. They lost $570m in 2011 as the shares plunged 44%.

Bank of America Corp. (BAC) employees lost the most, $1.37bn, as the lender’s stock dropped 58% last year. Staff at JPMorgan Chase & Co. (JPM) and Citigroup Inc. (C), both based in New York, also lost hundreds of millions of dollars.

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Wall Streeters Lose $2 Billion in 401(k) Bet on Own Firms