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Banks may shrink for good as layoffs near 160,000

Am kinda losing my motivation for studying for next CFA exam…

(Reuters,LONDON | Fri Nov 16, 2012) - Major banks have announced some 160,000 job cuts since early last year and with more layoffs to come as the industry restructures, many will leave the shrinking sector for good as redundancies outpace new hires by roughly two-to-one.

A Reuters analysis of job cuts announced by 29 major banks showed the layoffs were much bigger in Europe than in Asia or the United States. That is a particular blow to Britain where the finance industry makes up roughly 10 percent of the economy.

The tally of nearly 160,000 job cut plans, meanwhile, is likely to be a conservative estimate as smaller banks and brokers are also cutting staff or shutting up shop, and bigger banks have not always disclosed target numbers of layoffs.

The tally also does not include reports of 6,000 job cuts to come at Commerzbank, for example, which the German group would not confirm last week.

Well-paid investment bankers are bearing the brunt of cost cuts as deals dry up and trading income falls. That is particularly the case in some activities such as stock trading, where low volumes and thin margins are squeezing banks.

“When I let go tons of people in cash equities this year, I knew most would be finished in this business. It is pretty dead. Some will just have to find something completely different to do,” said one top executive at an international bank in London, on condition of anonymity.

The job cuts eat into tax revenues usually reaped from the sector at a time when the global economic recovery is slowing.

This year’s tax income from the industry in Britain could drop to around 40 billion pounds ($63 billion), compared to 70 billion in 2007/08, when the financial crisis hit, the Centre for Economics and Business Research (CEBR) think-tank said this week.

The job cuts announced since the beginning of 2011 come on top of job cuts already carried since 2009.

Of the 29 banks, from Europe’s biggest bank HSBC to U.S. investment bank Morgan Stanley, just over 83,700 net jobs have been lost since 2009, with 167,200 jobs axed and 83,500 created.

Squeezed by regulations forcing banks to store up more capital in their trading businesses, firms are likely to shrink their investment banking units even further, as they overhaul their models to survive.

“It is structural as well as in response to cycles in the market. The market is still over-broked,” said Zaheer Ebrahim at recruiters Kennedy Group.

Swiss bank UBS last month outlined a further 10,000 layoffs after announcing a plan for 3,500 job cuts last year. It said in October it had decided to exit most of its rates and debt trading units.

Workers in retail banking operation will not be immune to job cuts either, particularly in slowing European economies. In France for instance, bank executives predict retail revenues will falter.

“There are still 300,000 too many full-time employees in the top financial services players in Europe,” said Caio Gilberti from the financial services practice of consultancy AlixPartners. Gilberti said cutting those jobs could lop just over 20 billion euros off banks’ collective cost base.

LEAVING FOR GOOD

As banks shrink, fewer of those leaving are able to find equivalent jobs at rivals, head-hunters and bankers said, and only a small proportion of those are qualified to move into other jobs at hedge funds, for instance, which look for specialized, skilled traders.

Mergers and acquisition dealmakers are now also coming under pressure, with fees in that area down 21 percent worldwide to $13.9 billion in the first nine months, Thomson Reuters data showed.

More senior investment bankers are among those in the line of fire. Those ranking as managing directors (MDs), who can command base salaries of around 350,000 pounds ($556,000), are becoming costly to keep - and difficult to take on.

“At MD level, it is tougher to accept smaller jobs, and they do not have the same drive and ambition as the young bankers who have just graduated,” Ebrahim from the Kennedy Group said.

Many of those that have enjoyed lucrative careers in the fatter years are instead leaving big banks for good, setting up their own small consultancies or different types of businesses.

That’s crazy.

I’m also losing motivation over studying for the CFA exams. I’m not looking to get into IB but I can’t even land a job in a back-office. I’m starting to think that I should find an unrelated job and invest on the side as a hobby.

Finance was in a bubble the last 2 decades.  This is a natural process.

Inducted into the AF Hall of Fame, class of ‘17

I wish it lasted only a  little bit longer, now I have to sit tight and wait for the next one! ;) Ok, that’s not funny. At all.

On a more serious note, maybe it’s time to take a finance job at a blue chip corporation and wait until the banking  job market stabilizes.

Krisztina wrote:

I wish it lasted only a  little bit longer, now I have to sit tight and wait for the next one! ;) Ok, that’s not funny. At all.

On a more serious note, maybe it’s time to take a finance job at a blue chip corporation and wait until the banking  job market stabilizes.

This isn’t a bad idea. You’ll have stable income, the cachet and resources of a bigger firm, and much better work life balance. You can then try to get back into front office finance when hiring improces overall.

I suspect that the value of the CFA charter peaked in 2006 and will probably never reach that level again.

There are now arguably “too many” charterholders and CFA candidates vs the number of financial analyst jobs.

Wendy wrote:
I suspect that the value of the CFA charter peaked in 2006 and will probably never reach that level again. There are now arguably “too many” charterholders and CFA candidates vs the number of financial analyst jobs.

I agree. The supply-demand imbalance seems more egregious now than ever.

^ Sad and True..  A majority of young CFA candidates today won’t be able to land that asset management or equity research job they desperately want. 

Everyone getting laid off with experience will more likely be willing to trade down or take lower pay, thus nearly eliminating any junior openings (unless you go through the typical school-recruiting path)

Hope. It is the quintessential human delusion, simultaneously the source of your greatest strength, and greatest weakness.

I wouldn’t be surprised if many of the senior level people being laid off leave finance and do something else. If they’ve been successful and saved some of the money they’ve earned, they may be inclined to semi-retire and pursue something that they’ve always been interested in but never had the time. They may also start their own boutiques that will need junior staff as well. I don’t think the finance field is dead, but it is undergoing a huge shift and salary expectations definitely need to change. It seems like the juniors have had crazy salaries in the past relative to other industries, and supply/demand will start to rebalance this.

^ In other words, get used to deflation or disinflation for still some time.

Inducted into the AF Hall of Fame, class of ‘17

It’s interesting about the salary points.

Let’s say typically, a junior person in equity research at a top company can expect $100k all in.  They do put in relatively long hours though say ~70 hours or 80during earnings season.  When you match that against a back office position that does much fewer hours, the per hour rate really isn’t all that different.

If you start slicing the pay, but the hours don’t change, I really would think people will start to drop out as it becomes much less appealing.

Hope. It is the quintessential human delusion, simultaneously the source of your greatest strength, and greatest weakness.

Krisztina wrote:

I wish it lasted only a  little bit longer, now I have to sit tight and wait for the next one! ;) Ok, that’s not funny. At all.

On a more serious note, maybe it’s time to take a finance job at a blue chip corporation and wait until the banking  job market stabilizes.

I am sorry to break it to you, people, but  it is waaay tougher to break into those kind of jobs than into IB… unless you want to do controlling or some other glorified accounting crap…