MICHAEL Lipper believes luxury property rents in Hong Kong may have peaked on this cycle. But then what does Mr Lipper know about Hong Kong property? He works out of New York, and his business is analysing the performance of fund mangers at Lipper Analytical. He also examines the records of US investment and securities houses, and it is what he is seeing there that leads him to conclude that the best may be over for Hong Kong landlords - at least those who are counting on the big US banks and brokers for their business. The securities market in Hong Kong is rife with rumours of US firms cutting back on staff, but Mr Lipper's views are extrapolated from the hard facts of the recent performance of brokerage houses in America. And suddenly the figures do not look so good. Last year was easy street for the investment banks, bonuses were big, and the boys with the red braces were looking at the Porsche catalogues again. Then along came the Federal Reserve Board, and like a strict aunt wagged her fingers at the market, and raised interest rates to head off an inflation surge which was expected to follow the boom in the economy. This put the brakes on for the financial houses. 'The second quarter was particularly bad but the third quarter wasn't particularly good. One quarter does not make a trend, but shareholders start asking questions when they see succeeding quarters looking bad,' said Mr Lipper, who was in Hong Kong last week attending the Global Asset Management Conference. Investor unrest put pressure on management to 'do something'. And when the revenue side of the equation is weakening in a secular manner, the only thing to do is cut costs. That could mean a stroke of the pen in New York sending a body out the door in Hong Kong. Already the poor second and third quarters have seen US houses wielding the scalpel, if not the axe. Merrill Lynch, with profits down 27 per cent in the second quarter and 36 per cent in the third, has laid off four per cent of its bond unit. Lehman Brothers, which has particular problems following its spin-off from American Express, has laid off eight per cent of its staff. Others have not yet followed in cutting staff, but the figures suggest a continuation of the weakening trend could lead to cuts. Salomon Brothers took a US$100 million loss in the third quarter, following a $204 million loss in the previous three months. Morgan Stanley, however is still hiring despite a 45 per cent drop in the second quarter. Why Hong Kong, and other outlying posts, should be at risk when the problems are at home is shown by the slackening of interest in this region by the US investor. Following the Biggs Boom of 1993, sales of Pacific region mutual funds have slumped sharply. In December last year they hit a peak of $1.29 billion. By March this year there was a net negative of $301 million as sellers outnumbered buyers, and in June sales were running at a modest $224 million. That sort of slowdown in exposure to Asia must mean a reduction in the demand for locally-based staff, which could be a problem when the fighting starts in the boardrooms, and managers start defending their turf. If Pacific operations are not pulling their weight, present staffing levels could be hard to defend. Mr Lipper is not expecting the sort of bloodbath that devastated Wall Street in 1987, but he estimates that 25,000 out of 225,000 jobs could be lost in the US financial sector. 'If things get real severe, the payrolls could be down to 175,000,' he said. Hong Kong's value for money could be open to question, he said. 'The costs in this town can be so high, it is clear to me that you need all of those bodies.' The attractions of China, and the initial public offerings which gain firms such a high profile, are not so obvious to Mr Lipper, who does not believe the effort is paying off in firm profits yet. The proportion of costs represented by salaries has soared among New York Stock Exchange members over the past year. From 53 per cent in the second quarter of last year, the figure had soared to 61 per cent. Cutting back would not be as easy as it was in the past, says Mr Lipper. 'You don't have the same sort of staff who were easy to lose. Now they are much more valuable, technical people, computer guys, and when you lose them you lose important assets which may be difficult to replace when you need them again.' So, rather than slicing across the whole corporation, he reckoned managements could start closing whole operations. Things in New York are not yet so grim that the consequences may be quite that drastic. Lessons of over-employment were learned in the past, but the pressure is on, and that could mean Hong Kong landlords will find themselves with some hard bargaining ahead, as former big spenders start watching the budgets.