Investment banks have started cutting more jobs in London, New York and elsewhere and may sharpen the axe again if there is not a quick recovery from a grim first quarter, bankers and analysts said.
Nomura, Goldman Sachs, Credit Suisse and BNP Paribas have all cut jobs in recent weeks after a poor second half to 2015 extended into the first quarter of this year. Revenues across the industry in Q1 were down by 20%–25% on average from a year ago.
The slump appears to have been a wake-up call for bosses to slice costs for a low-revenue environment.
“We’re already seeing a lot of them have another stab at costs,” said Piers Brown, analyst at Macquarie in London. “A lot of banks were sitting tight and hoping the markets would come to them and that hasn’t happened, so we’re probably at crunch time now for a few of them.”
Few areas bucked the weak trend during the first quarter.
Revenues from fixed income, currencies and commodities across 11 major US and European banks fell by 23% in the first quarter from a year earlier. Equities revenues at the same banks fell by 20%, and the same decline was seen across advisory and investment banking units, according to IFR calculations (see chart).
European banks fared better on average than their US rivals in FICC, but far worse in equities, where revenues across six European firms slumped 28%.
The first quarter, which has often accounted for 30% of annual revenues in the past as clients try to get ahead with their fundraising, bodes ill for 2016’s prospects.
One senior banker said it could see revenues this year fall by about 15% from 2015, adding to a 9% drop over the past three years.
Banks have publicly been more optimistic, saying March and April recovered from an awful January and February, and there are pent-up deals that could come through later in the year.
But privately many are cautious. US elections, Britain’s vote on a possible EU exit, sluggish global growth and a low or zero interest rate backdrop have all sucked confidence out of the market.
That leaves many investment banks facing another year of sub-10% returns on equity, and bank bosses are aware that investors are getting impatient for that to end.
“A lot of banks have been pretty slow to accept there might be long-term change in the business and held on to cost structures that increasingly look like they aren’t suitable going forward,” Brown said, citing high overheads in IT systems, personnel levels and compensation.
“Necessity the mother of invention”
FICC remains the area most ripe to slim down further, bankers and analysts said, but more cuts are being seen in equities and other areas too after the revenue slump. Some areas have seen huge revenue falls, including equity capital markets, where fees halved at most major banks in the first quarter and slumped by two-thirds at Deutsche Bank and Goldman.
“A lot of banks have been pretty slow to accept there might be long-term change in the business”
Nomura axed about 800 staff in Europe and the US last month and most of its cuts were in equities as it closed much of its equities business in Europe.
Barclays in January cut its cash equities trading business in Asia as part of the culling of 1,200 more investment bank jobs as it quit nine countries.
Credit Suisse cut about 130 staff in fixed income and equities in London last week in the latest move by new CEO Tidjane Thiam to streamline the investment bank. Thiam said in March he would cut about 2,000 jobs in global markets to accelerate a restructuring plan he only unveiled five months earlier as investors urged more dramatic action.
More job cuts could be on the cards at Societe Generale after it last week outlined plans to save another €220m in annual costs in its investment bank, and rival BNP Paribas said it could cut up to 675 jobs in its corporate and investment bank in France over the next three years, amounting to 11% of CIB staff.
US banks may have taken market share from troubled European rivals last year, but they are not immune to the impact of weak revenues. Citigroup has said it would cut about 2,000 jobs globally this year, and Morgan Stanley cut about 1,200 staff earlier this year.
Goldman has cut about 100 more staff in recent weeks across its securities business, spanning fixed income and equities, a person familiar with the matter said. That would take its cuts this year in FICC to about 10%.
Earlier this year Goldman CEO Lloyd Blankfein acknowledged that banks needed to take a pragmatic approach to costs when revenues are under as much pressure as they are.
“We take a particular and energetic look at continued cost cuts when revenues are stalled… Necessity is the mother of invention,” Blankfein said.
