Banks are preparing for the biggest round of job cuts since the global financial crisis, as executives are under pressure to cut costs following a collapse in investment banking revenue.
The lay-offs – which are expected to number in the thousands across the sector – reverse the massive hiring banks have done over the past few years and a reluctance to fire employees during the Covid-19 pandemic.
“The job cuts that are coming are going to be brutal,” said Lee Thacker, owner of financial services headhunting firm Silvermine Partners. “It’s a reset because they’ve hired more in the last two to three years.”
Banks including Credit Suisse, Goldman Sachs, Morgan Stanley and Bank of New York Mellon have begun cutting more than 15,000 jobs in recent months, and industry watchers expect others to follow suit. Excited about the headline-grabbing schemes announced since.
“We’ve seen some warning shots from the US,” said Thomas Hallett, an analyst at Keefe, Bruyette & Woods.
“Investors need to see management working on costs and trying to maintain a reasonable return profile. Europeans will follow US banks.”
Anna Arasov, co-head of global banking at Moody’s, said she expected job cuts to be less severe than during the financial crisis, but heavier than the collapse in markets following the dotcom crash in 2000.
“What we are seeing is a catch-up of the normal bank lay-offs that stalled over the past few years,” she said. “We will see trimming in European franchises, but not as large as the US banks.”
Bank officials said Goldman’s lucrative lay-off – part of its biggest cost-cutting drive since the financial crisis that included everything from corporate jets to bonuses – set a precedent that other banks could follow. Would like to
“The Goldman headlines are speeding up decision-making,” said an industry executive with knowledge of several banks’ plans. “If you follow Goldman this is a good time to announce painful cuts.”
The Wall Street bank last week began the process of laying off 3,200 employees, equivalent to 6.5 percent of its workforce, as pressure mounted on Chief Executive David Solomon to improve the bank’s return on tangible equity.
Goldman is cutting the same number of employees as it did in 2008 during the depth of the global financial crisis, but then its workforce was two-thirds its current size.
Morgan Stanley laid off 1,800 employees in December, just 2 percent of its workforce. Despite having a strong wealth management business, the lender’s investment bank suffered losses with its fierce rival Goldman Sachs accounting for nearly half of M&A revenue last year.
Morgan Stanley said further staff cuts were not imminent.
“We were clearly overdue a bit,” Chief Executive James Gorman told analysts. “We hadn’t done anything for a few years. We’ve made a lot of growth, and we’re going to continue to track that.”
The world’s largest custodial bank, Bank of New York Mellon, plans to cut about 3 percent of its workforce – about 1,500 employees – in the first half of the year.
Chief executive Robin Vince told the Financial Times the bank was “very careful to recognise” that letting people go during the Covid pandemic would “break the social contract” with staff.
But he added that “in the normal course of business we review staffing levels. As a well-run business we must be good stewards of our expense base.”
The biggest cuts to date have been announced by Credit Suisse, which is in the midst of a radical strategic reform aimed at reinvigorating the scandal-plagued Swiss bank. Last October, the bank said it would cut 9,000 positions out of its 52,000 workforce over the next three weeks.
While up to 2,700 cuts were planned for last year, the bank has already started redundancies on more than 10 per cent of investment banking roles in Europe, the Financial Times reported last week.
Credit Suisse, in the midst of a strategic revamp, is planning to cut 9,000 roles from its 52,000 workforce © Stephan Wermuth/Bloomberg
The size of the restructuring at Credit Suisse is greater than that of the bank during the financial crisis, when it was forced to lay off more than 7,000 workers in 2008 but was saved by a state bailout.
Not all banks expect major headcount cuts, though they are taking other measures to keep costs down.
Bank of America, which employs 216,000 globally, said it had “no plans for mass layoffs”, although it was taking a disciplined approach to costs and would only recruit for the most critical roles .
Chief Executive Officer Brian Moynihan told Bloomberg in Davos that fewer people had left the bank than last year, which was affecting its hiring policy.
“We went way ahead in terms of hiring and we exceeded our target headcount,” he said. “And now we can have a slowdown in hiring.”
Citigroup has so far given few details about how many of its 240,000 global workforce will be affected by the lay-offs, but chief financial officer Mark Mason told reporters that after the division’s 22 percent drop within its investment bank There was pressure to cut costs. in profits.
“as part of [business as usual]We are constantly combing talent to make sure we have the right people in the right roles and where necessary to restructure, we do that as well,” he said.
Yet at least one global bank is trying to raise its rank in a targeted manner. UBS chief executive Ralf Hammers said in Davos that the Swiss lender was “bucking the trend” when it came to hiring.
UBS chief executive Ralf Hammers says the Swiss lender is ‘bucking the trend’ of hiring rather than firing © Holly Adams / Bloomberg
Unlike its rivals, UBS hasn’t hired as aggressively in recent years and therefore isn’t under the same pressure to cut roles.
It has also devoted more resources to wealth management over the past decade and the bank’s senior executives feel now is a good time to invest more in the investment bank – along with hiring in wealth and asset management. Competitors retreat.
Senior figures at UBS told the FT that these efforts have included picking up disgruntled traders from boutique advisory firms.
By comparison, UBS was forced to cut 10 per cent of its workforce in 2008 – with most of the roles coming from its investment bank – because the lender was banned by the Swiss government after incurring heavy losses on subprime mortgages. Bail was granted.
The biggest job cuts in 2008 came from banks that had brought their rivals to their knees with the financial crisis. When Bank of America acquired Merrill Lynch, for example, it laid off 10,000 employees, while making 7,500 employees redundant at mortgage lender Countrywide Financial.
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JPMorgan let go of 9,200 Washington Mutual employees as it tackled America’s largest savings and loan association, in addition to cutting a 10th of its own workforce.
Meanwhile, the collapses of Lehman Brothers and Bear Stearns put thousands of bankers out of work. Overall, more than 150,000 bankers lost their jobs during the financial crisis.
And just like 15 years ago, the chances of finding employment again quickly are bleak for those who are out of work now, according to recruiters.
“You have this awful flood of quality coming into the market, but who picks them up?” Thakar said. “This time there is no procuring to appoint these people. They don’t have the ability.
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