First they came for fixed income. Now, it seems they may be coming for cash equities. With equities sales and trading revenues down 18% in the first half of 2016 compared to the previous year, there are mutterings about taking costs out of the cash business before the year is out.
Headhunters in London say banks are planning cuts to their cash equities businesses in the coming months. Search firm Options Group says most banking divisions in Europe are in stasis or hiring at low-to-moderate levels, with one exception - cash equities. In cash equities alone, it says cuts are imminent.
The stars are certainly aligning for cuts to equities. With the clear of exception of Nomura, it's been a while since banks have done anything dramatic in the area. Credit Suisse cut 50 people from its London equities business in May and is now said to by headhunters to be contemplating further cuts. Morgan Stanley cut 5% of its equities sales and trading staff at the end of last year, but did so with the intention of hiring new and better staff to fill their seats. And while Citigroup made cuts from its European equities sales and trading team at the start of 2015, it's since been building up again - particularly in equity derivatives - under new co-head of equities Murray Roos.
Costs in equities businesses haven't kept pace with falling revenues. At Citigroup and Morgan Stanley, equities revenues were down 4% and 9% respectively year-on-year in the second quarter. At Barclays at Deutsche, they were down over 30%.
Absent big headcount cuts, falling revenues equal falling productivity. Figures from intelligence firm Coalition suggest equities businesses saw a particularly dramatic decline in productivity per head in the first half of this year.
If banks are waiting for equities revenues to rebound, they may need to be patient. Bernstein banking analyst Chirantan Barua predicts it will be 2018 before the equities cycle turns. Keen to take out costs, will banks wait that long? The Financial Times said this week that Brian Chin, the new head of global markets at Credit Suisse, has been promoted with a mandate to improve the performance of the bank's equities business in the same way that he improved the performance of the bank's credit business. This seems ominous in light of Credit Suisse's big redundancies in some areas of its fixed income business.
Not all equities headhunters are worried though. One says Credit Suisse is unlikely to make really big cuts under Chin ("After what they've done in fixed income, they'll have nothing left.") There's also the hope that Tim Throsby will shake things up a bit at Barclays, and maybe indulge in some 'upgrading.' Throsby doesn't arrive until January though, and will then need to get to grips with his new role as chief executive of Barclays' entire investment bank, including the fixed income division. "It will be this time next year before he's ready to do any equities hiring," says one headhunter, adding that previous colleagues are likely to be wary of joining him from J.P. Morgan anyway: "Why would anyone want to go from J.P. Morgan to Barclays?"