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These are the banks whose employees seem especially vulnerable to redundancy from September. They’re not all what you’d think

Morgan Stanley and Jefferies bankers seem especially susceptible

Unless revenues stage a remarkable comeback, it seems likely there will be even more investment banking redundancies in the fourth quarter. Short of pre-emptively planning to Cantor and investigating Plan Bs, there may not be much you can do about this. Nevertheless, it’s generally nice to know what might happen next.

Based upon banks’ performance in the first half, we’ve constructed the following ranking of job vulnerability by bank in the event that revenues keep falling.

We’re not taking a view on the likelihood that revenues will fall at these banks, we’re just pointing out the likelihood that if a fall does manifest, it will result in redundancies.

This judgement takes into consideration: the profit margin for the first half (how much a fall in revenues can be absorbed by lower profitability), the percentage of costs allocated to compensation (the extent to which employees will be at the forefront of any cost cutting that’s necessary) and the recent flexibility of non-compensation costs (the extent to which, in a situation of falling revenues, compensation costs look like the only thing that can be adjusted downwards.)

Not all banks are included: only those which break out compensation costs on a half yearly basis are ranked. If we’ve left any out, please complain about it in the comments.

By our reckoning, the bank whose employees look most susceptible to falling revenues is…Morgan Stanley, followed by Jefferies.

1. Morgan Stanley Institutional Securities: 

Morgan Stanley’s Institutional Securities Business tops the ranking simply because its wafer thin profit margin across the first half of 2012 means any reduction in revenues will be immediately reflected in costs. That said, however, it did successfully reduce non-compensation costs by 6% in the first half, suggesting employees won’t have to shoulder all necessary cost reductions.

Costs as a % of revenues in the first half: 97%

Compensation costs as a % of all costs in the first half: 58%

Stickiness of non-compensation costs in the first half: Non-compensation costs fell 6% year-on-year in the first half

2. Jefferies:

Jefferies’ employees look especially vulnerable to a reduction on revenues on all three counts: the profit margin is slim, a high proportion of costs are allocated to compensation and non-compensation costs look out of control in a declining market.

Costs as a % of revenues in the first half: 81%

Compensation costs as a % of all costs in the first half: 72%

Stickiness of non-compensation costs in the first half: Non-compensation costs rose 14% year-on-year in the first half

3. UBS investment bank:

As at Jefferies, the profit margin at UBS is slim. Non-compensation costs also look stubbornly high (and rising) and compensation accounts for a higher-than-average proportion of total costs at the bank.

Costs as a % of revenues in the first half: 88%

Compensation costs as a % of all costs in the first half: 64%

Stickiness of non-compensation costs in the first half: Non-compensation costs rose 7% year-on-year in the first half

4. Credit Suisse investment bank:

Credit Suisse’s investment bankers look more secure than their colleagues at UBS. CS has successfully been reducing non-compensation costs this year. It also has a higher profit margin than UBS (which made a loss in its investment bank in the second quarter).

Costs as a % of revenues in the first half: 81%

Compensation costs as a % of all costs in the first half: 62%

Stickiness of non-compensation costs in the first half: Non-compensation costs fell 7% year-on-year in the first half

5. JPMorgan investment bank:

Although non-compensation costs look sticky at JPMorgan’s investment bank, it has a healthy profit margin and staff costs account for a lower than average proportion of its cost base.

Costs as a % of revenues in the first half: 61%

Compensation costs as a % of all costs in the first half: 58%

Stickiness of non-compensation costs in the first half: Non-compensation costs rose 4% year-on-year in the first six months

6. Goldman Sachs: 

Goldman Sachs had a less healthy profit margin than JPMorgan’s investment bank. A higher proportion of its costs were also eaten up by compensation. However, Goldman held the record for reducing non-compensation costs in the first half, suggesting employees won’t necessarily bear the brunt of further cost reductions if revenues fall.

Costs as a % of revenues in the first half: 73%

Compensation costs as a % of all costs in the first half: 61%

Stickiness of non-compensation costs in the first half: Non-compensation costs fell 8% year-on-year in the first half

7. RBS Markets:

Now that it’s cut out equities and M&A staff, RBS looks like one of the more secure investment banking employers. It has a good margin, compensations account for a below-average proportion of costs and non-compensation costs appear to be under control. We’d suggest it’s the bank at which redundancies are least likely in the final quarter.

Costs as a % of revenues in the first half: 62%

Compensation costs as a % of all costs in the first half: 57%

Stickiness of non-compensation costs in the first half: Non-compensation costs rose 1% year-on-year in the first half

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