Headcount cull claims investment bankers

Investment banks have axed thousands of staff in recent months

As job cuts continue to bite at some of the world’s largest banks and financial institutions, new figures from Bloomberg Industries reveal the scale of the cull, which is being  driven by lacklustre macroeconomic performance in Europe, a declining stock market and tightening financial regulation.

Since November, Citigroup announced 11,150 job cuts, followed by American Express with 5,400 cuts and Morgan Stanley with 1,600.

The Citi redundancies are part of a corporate restructuring plan that aims to cut $1.1 billion in annual costs by 2014, with $900 million of that to be achieved by the end of this year. The elimination of 11,000 jobs represents 4% of the company’s workforce. Cuts at UBS, where 10,000 employees will be axed by 2015 under the firm’s restructuring plan, represent 16% of the bank’s workforce, according to Bloomberg Industries.

“With limited revenue growth or declines, the importance of cost control in preserving profitability raises the value of effective management,” said Alison Williams, senior banks analyst at Bloomberg Industries. “The ability to drive costs lower while making strategic choices that balance future opportunities and existing business is increasingly crucial.”

In retail banking, the research found that revenue pressure has all but halted the expansion of bank branches since 2008.

“U.S. bank branches are likely to decline in 2013,” said Williams; previously, branches had increased by 57% in the 15 years before the financial crisis. Data suggests that US bank SunTrust made a 1.5% cut in branches and 8% cut in branch staff over the last year, while rival KeyCord closed 19 branches by the end of 2012 with a target of a further 50 to 60 by the end of this year, which represents around 5% of the firm’s total.

The Bloomberg job cut figures make for interesting comparison with research by Morgan McKinley’s London Employment Monitor at the end of last year, which showed that the number of available financial services jobs in London fell from 3,859 in October 2011 to 2,457 one year later, representing a decrease of 36%. Though the McKinley figures represent job vacancies across all financial services firms, it does give some impression of the filter-through effect of the crisis on overall activity in the sector.

Many of the cuts at the large wholesale banks took place in the investment banking sector – for example, it has been reported this month that Morgan Stanley plans to cut 15% of its investment banking staff in Asia. In September, Deutsche Bank cut 10% of its equities sales and trading staff; the bank cut some 2,000 jobs from its investment banking arm by the end of the year, and is also currently said to be considering a 20% bonus cut in Europe.

If the aim of these cuts is to shore up banks’ profitability, there are signs that these drastic measures may be succeeding. Revenue estimates for investment-banking focused firms hover at around 5-10% growth for 2013, while efficiency ratios are also rising, according to the Bloomberg figures. But Williams warns that the measures will only succeed if firms continue to maintain strong cost discipline. If revenues come in lower than 5-10%, further cuts may be necessary.

“This modest recovery dictates a continued focus on effective cost control and capital allocations to preserve profitability,” she said. “Execution of announced restructuring plans will reduce staff, with targets likely to rise if revenue falls short.”

The need to cut jobs in investment banking has been driven in part by a combination of falling commission income, triggered by a deepening economic crisis, increasing regulation and collapsing equity trading volumes. The core broker commission pool fell by 29% in 2012, according to research by TABB Group. Political events have also taken their toll; RBS was forced to sell off the greater part of its global investment banking operation by the UK government in exchange for a bailout in the aftermath of the financial crisis. Legislation such as Dodd-Frank in the US and EMIR in Europe have also eaten away at bank profits by introducing significant additional costs in margin and collateral requirements for firms trading OTC derivatives.

“The traditional brokerage model can’t continue,” Rebecca Healey, senior analyst at TABB Group told Banking Technology in November. “There isn’t the flow in Europe to pay for broker services.  Firms are being forced to rip up the rule book, as austerity deepens.”