The axe is now swinging with abandon. UBS unveiled yet another set of embarrassing quarterly results on May 6th and also announced 5,500 job losses, many of them at its investment-banking unit. The cull comes soon after similar carnage at Citigroup and Merrill Lynch, which also announced thousands of cuts last month.
That these three are issuing pink slips is no surprise: they have posted the biggest losses, and UBS, for one, has said it wants to scale back its investment-banking business. But others are also cutting. On May 5th Morgan Stanley said it planned to chop 1,500 jobs in the next few months. JPMorgan Chase and Royal Bank of Scotland are set to shed jobs at Bear Stearns and ABN AMRO’s wholesale arm respectively.
Mindful that they quickly had to rehire after the dotcom bust, the last big round of lay-offs, many in the industry had hoped for modest job losses. After an initial burst of cuts last year focused mainly on America’s benighted mortgage industry, the pace of firing had slowed early this year. But as banks face up to a protracted period of much lower growth, sackings have picked up again.
Data from Challenger, Gray & Christmas, a consultancy, show that one in every four job cuts announced in America last month came in financial services. New York’s Independent Budget Office reckons that the city will lose 12,600 financial jobs in 2008 (blowing a large hole in its tax revenues). The Centre for Economic and Business Research forecasts that 19,200 jobs will go in the City of London over the next two years.
The pain will not be evenly distributed. Inside the investment banks, fixed-income specialists are at particular risk. The outlook is bouncier in commodities and (for the moment) equities. There is even some hiring—especially for desks to deal with cash-rich sovereign-wealth funds. A little late, good risk managers are in demand. So too are bankers specialising in the finance industry, where there is no shortage of capital to be raised and deals to be done.
Emerging markets are still expected to grow (even if redundancies are also happening in places like Hong Kong): headhunters say American bankers are more willing to move abroad in search of work. Wealth-management types are also in demand as banks look to secure stable sources of income.
Investment banks have more flexibility than others to deal with a downturn, thanks to bonuses. Having such a variable cost base makes it easier to reduce expenses without cutting jobs. Goldman Sachs’s pay pot dropped by 35% in the first quarter, for example, compared with the same period in the previous fiscal year.
Other banks have fewer options. Octavio Marenzi, the boss of Celent, a consultancy, says that American commercial banks are aiming to cut their costs by around five percentage points in total. Since roughly half their expenses are tied to borrowing costs, which they cannot control, that translates into an 8-10% fall in non-interest operating costs, of which salaries are a big part. Celent forecasts that up to 200,000 jobs could go in American banks over the next two years.
All this blood-letting may reassure shareholders. Whether it will do them much good in the longer term is more doubtful. Swingeing cuts tend to slice into muscle as well as fat, hurting the bits of the bank that can make money. According to Mr Marenzi, banks that announce cost-cutting programmes are more likely to see their expense ratios worsen than those that do not. The idea of jobless bankers may gladden some souls; the brain should reserve judgment.