The recent global economic downturn has taken a toll on many different industries. As a result of decreased revenues, companies have been slashing costs and cutting jobs. But there has been a perception that even though much of the blame for the recession can be placed at the feet of the financial industry, investment banks haven’t really suffered all that much. There was a kernel of truth to that viewpoint, but lately, even investment banks are starting to thin their ranks.
According to Financial News, there has been a 5.6% drop in investment banking jobs among the eight biggest banks in the world between June of 2011 and this past June. Here is a snapshot of the employment reductions (some figures are estimated).
|Bank||Jobs in June 2011||Jobs in June 2012||% drop|
This trend has not been limited to the global investment banking conglomerates. The top state-owned lender in Britain, Royal Bank of Scotland Group, has announced that it will jettison 4,800 jobs, 3,500 of which would come from the investment banking division. And experts are saying that even if other firms don’t publicly announce job cuts, they will be reducing their workforce quietly.
Industry watchers are saying that this job contraction among the investment banking sector is long overdue – in large part because these companies resisted such cuts for so long. One reason for the delay is the inherent optimism displayed by investment bankers that a down market always bounces back (the 2009 market rally appeared to validate this line of thinking). And even when investment banks were considering reductions in staff levels, there was a fear of not wanting to be the first to “blink,” thinking that such a move would lead to lost market share by those entities which dragged their feet.
But the investment banks could no longer deny the writing on the wall. Total investment banking fees have plunged both in Europe and North America. As a result, revenue per employee at some investment banks has been chopped in half when compared to numbers from six years ago. Trading volumes in credit, rates, and foreign exchange tumbled by some five to ten percentage points from the first to the second quarter of 2012. And when ongoing sluggish consumer sentiment is combined with a trend of increased industry regulation, the picture that emerges is an environment where investors are less likely to seek out banking services in the near future.
To be sure, investment banks are trying to take other steps to trim costs. Many have already sliced discretionary spending, frozen recruitment, and cut bonuses for existing staff. Because of the looming specter of increased regulation, these banks don’t want to reduce staff in their compliance departments; instead, they are trying to increase efficiency by sharing back offices with other departments, as well as getting out of unprofitable areas of business.
This bleak outlook is leading some analysts to opine that the job culls in investment banking may increase even more. Some feel that since the number of investment bankers was disproportionately high during the boom times, the force reductions represent a natural correction that was long overdue in the industry. The hope is that once investment banks finally trim the fat, they will be better positioned to rebound if and when the worldwide economy turns around. But for the time being, thousands of investment bankers may have to start updating their resumes.
Photo credit: David Paul Ohmer
Chris Martin is a freelance writer who writes about topics ranging from auto insurance to investment banking to home improvement.