Banks are preparing for the biggest round of job cuts since the global financial crisis as executives are under pressure to cut costs after a slump in investment banking revenues.
The layoffs – which are expected to number in the tens of thousands across the industry – undo massive hiring by banks in recent years and the reluctance to lay off staff during the Covid-19 pandemic.
“The upcoming job cuts are going to be super brutal,” said Lee Thacker, owner of HR financial services firm Silvermine Partners. “It’s a reset because they’ve taken on too much in the last two or 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 are hoping others will follow suit, buoyed by plans already announced.
“We’ve seen some warning shots from the United States,” said Thomas Hallett, an analyst at Keefe, Bruyette & Woods.
“Investors need to see management act on costs and try to maintain a reasonable return profile. Europeans will tend to follow US banks.”
Ana Arsov, co-head of global banks at Moody’s, said she expected job cuts to be less severe than during the financial crisis, but heavier than during the market meltdown after the 2000 dot-com crash.
“What we are seeing is a resumption of normal layoffs at banks that have been on hold for the last few years,” he said. “We will see cuts in European franchises, but not as big as in US banks.”
Bank executives said Goldman’s sweeping layoffs — part of its biggest cost-cutting effort since the financial crisis that includes everything from corporate jets to bonuses — set a precedent that other banks will try to follow.
“Goldman’s headlines are accelerating the decision-making process,” said an industry official familiar with several banks’ plans. “It’s a good time to announce painful cuts if you follow Goldman.”
The Wall Street bank began laying off as many as 3,200 employees last week, or 6.5% of the workforce, as pressure mounts on Chief Executive David Solomon to improve the bank’s return on tangible assets.
Goldman is similarly cutting headcount as it did in 2008 at the height of the global financial crisis, but its workforce at the time was two-thirds its current size.
Morgan Stanley laid off 1,800 employees in December, just over 2% of its workforce. Despite having a robust wealth management business, the lender’s investment bank suffered along with its fierce rival Goldman Sachs a nearly half decline in mergers and acquisitions revenues last year.
Morgan Stanley said no further staff cuts are imminent.
“Frankly, we were a little late,” Chief Executive James Gorman told analysts. “It’s been a few years since we’ve done anything. We’ve had a lot of growth and we’ll continue to monitor that.”
Bank of New York Mellon, the world’s largest custodian bank, plans to cut just under 3% of its workforce — about 1,500 employees — in the first half of the year.
Chief executive Robin Vince told the Financial Times the bank had been “very careful to acknowledge” that making staff redundant during the Covid pandemic would “break the social contract” with employees.
But he added that “in the normal course of business, we review staffing levels. As a well-run business, we need to be good stewards of our spend base.”
By far the biggest cuts announced so far are at Credit Suisse, which is in a sweeping strategic overhaul aimed at consolidating the scandal-plagued bank. Last October, the Swiss bank said it would eliminate 9,000 roles from its workforce of 52,000 over the next three years.
Although 2,700 of the cuts were planned last year, the bank has already initiated calls for layoffs in more than 10% of its investment banking functions in Europe, the Financial Times reported last week.
The scale of the restructuring at Credit Suisse is larger than that carried out during the 2008 financial crisis, when the bank was forced to lay off more than 7,000 employees but avoided a state bailout.
Not all banks plan to make large layoffs, although they are taking other steps to reduce costs.
Bank of America, which employs 216,000 people worldwide, said it has “no plans for mass layoffs” but is taking a disciplined approach to costs and only hiring for the most critical functions.
Chief Executive Brian Moynihan told Bloomberg in Davos that fewer people left the bank last year than expected, which affected his recruitment policy.
“We’ve gone through the hiring side and exceeded our headcount goal,” he said. “And now we can slow down hiring.”
So far, Citigroup has provided few details about how many of its 240,000 global employees will be affected by the layoffs, but chief financial officer Mark Mason told reporters there was pressure to cut costs at the investment bank after its 22 crash. % of division profits.
“In the context of [negócios como de costume]we are constantly on the lookout for talent to make sure we have the right people in the right roles, and when restructuring is needed, we do that too,” he said.
However, at least one global bank is looking to bolster its ranks, albeit in a targeted way. UBS chief executive Ralph Hamers told Davos that the Swiss lender was “bucking the trend” in terms of hiring.
Unlike its rivals, UBS has not been hiring aggressively in recent years and therefore has not faced as much pressure to cut jobs.
It has also devoted more resources to wealth management over the past decade, and the bank’s top executives believe now is a good time to invest more in investment banking, along with asset and wealth management hiring, as competitors pull away.
Those efforts include purging disgruntled traders from advisory firms, senior UBS figures told the FT.
By comparison, UBS was forced to cut 10% of its workforce in 2008 – with most of the jobs coming from its investment banking – when the lender was bailed out by the Swiss government after suffering heavy losses on subprime mortgages.
Many of the biggest job cuts in 2008 were at banks that bailed out stricken rivals from the financial crisis. When Bank of America took over Merrill Lynch, for example, it laid off 10,000 employees, while at the same time laying off 7,500 workers at mortgage lender Countrywide Financial.
JPMorgan laid off 9,200 Washington Mutual employees as it took over the largest savings and loan association in the United States, as well as cutting a tenth of its workforce.
Meanwhile, the collapse of Lehman Brothers and Bear Stearns has left tens of thousands of bankers out of work. In total, more than 150,000 bankers lost their jobs during the financial crisis.
As it was 15 years ago, the prospect of quickly finding a new job for those now unemployed is bleak, according to recruiters.
“You’ve got a terrible quality stream coming to market, but who’s getting them?” Thacker said. “The ‘buyside’ isn’t there to hire these people this time around. They just don’t have the capacity.”
Translated by Luiz Roberto M. Gonçalves
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