Banks are gearing up for the biggest round of job cuts since the global financial crisis as executives come under pressure to cut costs following a collapse in investment banking revenues.
The layoffs – expected to run into the tens of thousands across the industry – are a reversal of the massive hirings banks have made in recent years and the reluctance to lay off staff during the Covid-19 pandemic.
“The job cuts coming up are going to be super brutal,” said Lee Thacker, owner of financial services headhunting firm Silvermine Partners. “It’s a reset because they’ve been taking on too much 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 observers expect others to follow suit, encouraged by the already-announced plans that will grab headlines.
“We’ve seen some warning shots from the US,” said Thomas Hallett, an analyst with Keefe, Bruyette & Woods.
“Investors need to see management acting on a cost basis and trying to maintain a reasonable return profile. Europeans will tend to follow US banks.”
Ana Arsov, co-head of global banking at Moody’s, said she expected job losses to be less severe than during the financial crisis, but more severe than the market collapse following the 2000 dot-com crash.
“What we are seeing is catching up with the normal bank layoffs that have been suspended for the past few years,” she said. “We will see a downsizing in European franchises, but not as much as US banks.”
Bank executives said Goldman’s high-profile layoffs — part of the biggest cost cut since the financial crisis that spanned everything from corporate jets to bonuses — had set a precedent other banks would like to follow.
“Goldman’s headlines accelerate decision-making,” said an industry executive who was aware of several banks’ plans. “It’s a good time to announce painful cuts if you’re just following Goldman.”
The Wall Street bank last week began a process of laying off 3,200 employees, representing 6.5 percent of its workforce, as pressure mounts on CEO David Solomon to improve the bank’s return on tangible equity.
Goldman is cutting a similar number of employees as it did in 2008 during the depths of the global financial crisis, but the workforce was then two-thirds of its current size.
Morgan Stanley laid off 1,800 employees in December, just over 2 percent of its workforce. Despite a strong asset management business, the lender’s investment bank along with its fierce rival Goldman Sachs suffered a nearly halving in M&A revenue last year.
Morgan Stanley said no further staff cuts are imminent.
“We were a little late, frankly,” CEO James Gorman told analysts. “We hadn’t done anything for a few years. We have experienced a lot of growth and we will continue to follow that.”
Bank of New York Mellon, the world’s largest custodian bank, plans to cut just under 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 had been “very careful to acknowledge” that letting people go during the Covid pandemic would have broken “the social contract” with employees.
But he added that “in the normal course of business we review staffing. As a well-run company, we must manage our cost base well.”
By far the biggest cuts announced so far are those of Credit Suisse, which is in the midst of a radical strategic overhaul to bolster the scandal-plagued Swiss bank. Last October, the bank said it would cut 9,000 jobs from its 52,000 employees over the next three weeks.
While 2,700 of the cuts were planned last year, the bank has already begun layoff talks on 10 percent of investment banking positions in Europe, the Financial Times reported last week.
The scale of restructuring at Credit Suisse is greater than the bank endured during the financial crisis, when it was forced to lay off more than 7,000 employees in 2008 but avoided a state bailout.
Not all banks expect to implement major staff reductions, although they are taking other measures to keep costs down.
Bank of America, which employs 216,000 people worldwide, said it “had no plans for mass layoffs,” though it took a disciplined approach to costs and would only hire people for the most critical positions.
Chief executive Brian Moynihan told Bloomberg in Davos that fewer people left the bank than expected last year, which affected hiring policies.
“We overperformed on the hiring side and we went past our headcount target,” he said. “And now we can delay hiring.”
Citigroup has so far given few details about how many of its 240,000 employees worldwide will be affected by layoffs, but chief financial officer Mark Mason told reporters there was pressure to cut costs within his investment bank following the division’s 22 percent decline. at profit.
“As part of [business as usual]we are constantly combing through talent to make sure we have the right people in the right roles and where necessary to restructure, we do that,” he said.
Still, at least one global bank is trying to bolster its ranks, albeit in a targeted manner. UBS CEO Ralph Hamers said in Davos that the Swiss lender was “bucking the trend” when it came to recruiting.
Unlike its rivals, UBS hasn’t been hiring aggressively in recent years and so isn’t under the same pressure to cut features.
It has also been devoting more resources to asset management over the past decade, and senior executives at the bank feel now is a good time to invest more in the investment bank – along with asset and wealth management hires – as competitors withdraw.
These efforts include handpicking disgruntled dealmakers from boutique consulting firms, senior figures at UBS told the FT.
By comparison, UBS was forced to cut 10 percent of its workforce in 2008 — with most roles coming from its investment bank — when the lender was bailed out by the Swiss government after taking heavy losses on subprime mortgages.
Some of the biggest layoffs in 2008 came from banks that bailed out rivals brought to their knees by the financial crisis. For example, when Bank of America acquired Merrill Lynch, it laid off 10,000 employees and also laid off 7,500 workers at mortgage lender Countrywide Financial.
JPMorgan let go 9,200 Washington Mutual employees when it took over the largest U.S. savings and credit union, in addition to cutting a 10th of its own workforce.
Meanwhile, the collapses of Lehman Brothers and Bear Stearns left tens of thousands of bankers out of work. In total, more than 150,000 bankers lost their jobs during the financial crisis.
And just like 15 years ago, the prospect of quickly finding work again for those now unemployed is bleak, according to recruiters.
“There’s a terrible flood of quality hitting the market, but who’s going to pick it up?” Thacker said. “The buyside is not here to hire these people this time. They just don’t have the capacity.”