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Why it makes sense to junk juniors

Why would anyone with an inclination for cost cutting dump a lowly analyst? Analyst pay is relatively insignificant, so in times of cost constraint they should be impervious to layoffs.

Sadly, this doesn’t appear to be the case. While first-year analysts are usually immune to the chop for political reasons (banks don’t want university students to hear that their immediate predecessors have suffered a nasty fate), second and third years are getting canned just like everyone else. Fixed costs associated with each unit of headcount are to blame.

“There’s a massive central overhead,” says an ex-derivatives trader. “This means that at a junior level banks have an incentive to get rid of people, not because of salary savings, but because of savings in the cost of office space, security, etc.”

Andrew Pullman, MD of People Risk Solutions and a former head of capital markets HR at a European bank, says desk space alone can cost around 6k per head; a Reuters terminal can cost around 5k; and HR amounts to another 5k per person.

Once things like compliance, IT and other operational costs are factored in, the head of HR at one US bank in the City puts the total ‘seat cost’ at anywhere from 50k-75k. Additionally, employers’ national insurance contributions and benefits packages swell direct compensation costs by around 25%.

Before bonuses are even thrown into the equation, banks are therefore able to shave as much as 130k from the bottom line every time they get rid of a second-year analyst. Dumping junior bankers suddenly makes a lot of sense after all.

Comments (20)

Comments
  1. What rubbish, just because you fizz someone does not mean you save on the ‘seat cost’ – the Bank still pays the cost no matter what, the cost is only displaced to another cost centre. It’s an old trick to fool the gullible, but the old hands know that the Bank is still coughing up for all those empty seats, idle phones and leased computers. Also, will the HR cost of 5k be saved, no, the HRBP will still be there. Now….. if you really want to save some money, cull some MDs – lavish office space, telephone number bonuses, private restaurants, car parking, first class travel …… I’d rather fizz one MD and keep 10 hard working juniors any day!

  2. No wonder HR costs as much as the desk space. No sooner have banks recruited zillions more suits than can find darts to throw, they realise they can’t add any value and sack them again. Isn’t the real reason for laying off junior people (or anyone for that matter) that every employee on a bank payroll is one more pair of hands to **** away someone else’s money?

  3. One thing is worth mentioning here is the following: The firm I work for fired first year analysts less than a month ago (in fact, they did not complete even there first year of experience) and then it is expecting more than 150 new graduates in 2 weeks’ time. Last week, more than 200 interns bombarded the trading floors and the IBD offices with literally nothing to do . In my opinion, this firm is not saving money by cutting analysts who cost it a lot of money training them and then get huge number of interns and new graduates who will cost it more than what the fired analysts would cost…these firms think only about their image

    Last In, First Out Reply
     
  4. Juniors might work hard but only if there’s anything to do at all. By definition, they also know less, have less contacts, are less internally and externally connected and will not generate any business until 6-7 years down the line. Makes a lot of sense that they’re cannon fodder. I was a 2nd year M&A during the dot.com crash and got canned. Pretty harsh at the time, but I understand it now. What this article does not say is that if there is really no business at all, every one gets the boot. No matter whether they’re head of something or mere graduate.

  5. Ummmm…a case of stating the bleeding obvious? Seriously, how many of us did NOT know that there is a ‘seat cost’ associated with each of us employees and what that roughly works out to…Elementary, my dear efinancial…

  6. Well said Wizard. Not one of the MDs that I ever worked around actually did anything of any value. These “lavish” titles like: Vice President and Director are handed out like water at the same time boosting the salary – yet few of the people have done anything Presidential in their whole lives. At least Analysts, analyse.

    This is typical Banking nonsense, people pretend they are there for something other than the money which is the saddest part.

    Moresensethanmoney Reply
     
  7. I got canned by my firm just one month short of my first year. Was told by some that analysts costs are low but when they are canning a whole lot it can save the bank money. I only fear now I won’t have the experience to land another job due to market conditions and lack of experience.

  8. While I fully agree that MD’s usually did sod all in their big glass boxes, I guess many of them have paid some dues to get there and feel they can put the feet up up. Its not correct but a lot did their hard time on the floors.

  9. Are any ex-anaysts inclined to name and shame their ex-employers? It would be nice to hold them accountable if they are indeed laying off analysts so soon after recruiting them (and promising them the world at the time).

    an ex-ex-analyst Reply
     
  10. name: Barclays Capital

  11. Last In, First Out…. that’s exactly what happened to us at UBS

  12. My old boss in a low-rent energy consultancy was an accountant. He had some very creative ways of cutting costs. The method went something like the following: If you don’t pay your staff enough, they leave, thus saving you their salay. You continue not replacing staff when they leave (saving loads) until almost all the competent, high value staff have left, leaving only the really cheap dum-dums who can’t be bothered moving…thus saving you absolutely tons!

    On IT, you can save heaps by not replacing computers. Ever. If one has a severe problem along the lines of losing all of your files regularly, you simply take said computer, place it in the cupboard, and take out a machine of similar vintage with the the same set of problems. You can continue the “computer shuffle” ad nauseum.

    On bonuses, always promise, but never deliver. When the mast on your yacht snaps, replace it with a carbon fibre one, take the staff out for a spin, then write it off as a company expense…Golden Rule: Over promise, under deliver.

    It helps if you’ve just been bought out by middle eastern numpties with deep pockets, who have no idea what’s happening in their new purchase, of course!

  13. name: Lehman brothers..!!! canned junior people all across the board. i wish they would go down
    And then the CEO gets paid 40 bucks!!! who said life is fair

  14. Banking law beckons as it has for many of us from many of the dot-com ‘banker’ analyst days…it may be dull but its a living – and you don’t get sacked!

    reluctant lawyer Reply
     
  15. Name: BofA.

    cheated&robbed Reply
     
  16. So you guys have so far named UBS, Lehman, BarCap, BofA and RBS. No 2 votes for either as I write this. No one bank is guilty of this, its common procedure. Nonetheless, if you are a grad and you get canned, no matter what you say, you deserved it. If you were good at your job, impressed the people that matter and play your cards right, you won’t be canned, period. No matter what headcount chops are needed you’ll be saved (maybe redeployed) if you’re worth it.

  17. Have to say that i disagree with some of what Henry writes, but here he’s spot on. Unless you’re very senior and fall foul of big-time politics, GOOD PEOPLE DON’T GET FIRED. EVER. PERIOD. (unless they’re guilty of serious misconduct etc, and even then, in my experience, unless the organisation has absolutely no option, for instance for reputational reasons, they’re still kept on).

    This makes sense: in an environment as competitive as the City, in the main, the (job) market is efficient. The cream invariably rises to the top. Good people, i.e. deemed to be good by senior management (therefore managers/decision makers who by definition have been there & done it), are far too valuable to let go for trivial reasons (like “cost-cutting”, which is simply an excuse for culling people who the banks want to fire, but in normal market conditions can’t!).

    Replacing top talent is an expensive exercise. Like in the markets, the big players don’t want to pay offers. No. They pick people up on the bid. And then hold the position and let it run and run……………

  18. Henry – good at job, impress people that matter, and play cards right, that’s the secret is it? One will be saved or redeployed? Wow, it’s all so simple – thanks for your enlightened wisdom and telling people that if they try hard enough, they can reverse this credit crunch. Should I even bother asking how you impress people when you’re a first year analyst working on a sponsors team or in CDO syndicate? Do you flash them your big unit? Will that do the trick? Tell funny jokes? I also like how it’s so black and white in your little fantasy world (those who follow Henry’s 3 steps will survive, those who don’t get what they deserved). I suppose analysts in structured finance should have played their cards right and simply started on a different desk after graduation. With your wisdom, knowledge and savvy, you should be able to beat Paulson’s subprime trade, but for some reason I think you’re all talk.

    Redeploymentisafigmentofyourimagination Reply
     
  19. the reason why pay is so good is because there is NO job security.
    if you’re not street smart you wont survive the tough times.
    just get on with it!!

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