Banks prepare for the biggest number of layoffs since the 2008 crisis

Banks are bracing for the biggest round of job cuts since the global financial crisis, as executives come under pressure to cut costs after a collapse in investment bank revenues.

The layoffs – which are expected to number in the tens of thousands across the industry – reverse massive hiring by banks in recent years and a reluctance to lay off staff during the Covid-19 pandemic.

“The coming job cuts are going to be super brutal,” said Lee Thacker, owner of financial services HR firm Silvermine Partners. “It’s a reset because they’ve hired 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, encouraged 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 banking at Moody’s, said she foresees job cuts that are less severe than during the financial crisis, but heavier than during the market meltdown after the dot-com crash of 2000.

“What we are seeing is a resumption of the normal layoffs at banks that have been suspended in recent years,” she said. “We will see cuts in European franchises, but not as big as in US banks.”

Bank executives said the sweeping layoffs at Goldman – 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 look to follow.

“The headlines about Goldman are accelerating decision-making,” said an industry official familiar with the plans of several banks. “It’s a good time to announce painful cuts if you just follow Goldman.”

The Wall Street bank began laying off as many as 3,200 employees last week, equivalent to 6.5% of the workforce, as pressure mounts on chief executive David Solomon to improve the bank’s return. on tangible assets.

Goldman is cutting headcount similar to that it took in 2008, at the height of the global financial crisis, but its workforce at the time was two-thirds of its current size.

Morgan Stanley laid off 1,800 employees in December, just over 2% of its workforce. Despite having a strong wealth management business, the lender’s investment bank suffered along with its fierce rival Goldman Sachs a nearly half drop in M&A revenues last year.

Morgan Stanley said no further staff cuts were 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 custodial 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 that the bank was “very careful to recognize” that laying off staff 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 levels. As a well-run company, we have to be good stewards of our expense base.”

By far the biggest cuts announced so far are at Credit Suisse, which is in a radical strategic overhaul aimed at solidifying 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.

While 2,700 of the cuts were planned last year, the bank has already started redundancy inquiries in more than 10% of investment banking functions in Europe, the Financial Times reported last week.

The size of the restructuring at Credit Suisse is larger than that carried out during the financial crisis in 2008, when the bank was forced to lay off more than 7,000 employees but avoided a state bailout.

Not all banks expect to make big reductions in headcount, although they are taking other steps to reduce costs.

Bank of America, which employs 216,000 people worldwide, said it had “no plans for mass layoffs” but was taking a disciplined approach to costs and hiring only for the most critical functions.

Chief executive Brian Moynihan told Bloomberg in Davos that fewer people left the bank than expected last year, which was affecting its recruitment policy.

“We’ve outperformed the hiring side and exceeded our headcount target,” he said. “And now we can slow down hiring.”

So far, Citigroup has given few details on how many of its 240,000 global employees will be affected by layoffs, but chief financial officer Mark Mason told reporters there was pressure to cut costs at the investment bank after the company’s 22% profit plunged. division.

“As part of [negócios como de costume]we’re constantly on the lookout for talent to make sure we have the right people in the right roles, and when necessary to restructure, we do that too,” he said.

However, at least one global bank is looking to strengthen its ranks, albeit in a targeted way. UBS chief executive Ralph Hamers said in Davos that the Swiss lender was “bucking the trend” when it comes to recruiting.

Unlike its rivals, UBS has not hired aggressively in recent years and therefore has not been under the same pressure to cut jobs.

It has also devoted more resources to wealth management over the past decade, and the bank’s top executives feel this is a good time to invest more in investment banking — along with wealth and asset management hires — as competitors pull back. .

Those efforts include culling disgruntled traders from consulting 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 bank – when the lender was bailed out by the Swiss government after suffering heavy losses on subprime mortgages.

Several of the biggest job cuts in 2008 were at banks that rescued rivals knocked down by the financial crisis. When Bank of America took over Merrill Lynch, for example, it laid off 10,000 employees, while at the same time it laid off 7,500 workers at mortgage lender Countrywide Financial.

JPMorgan laid off 9,200 Washington Mutual employees when it took over the largest savings and loan association in the United States, as well as cutting a tenth of its own workforce.

Meanwhile, the collapse 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.

As 15 years ago, the prospect of quickly finding a new job for those who are now unemployed is bleak, according to recruiters.

“You’ve got a terrible stream of quality coming to market, but who gets it?” Thacker said. “The ‘buyside’ is not there to hire these people this time. They just don’t have the ability.”

Translated by Luiz Roberto M. Gonçalves