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Have banks cut too much?

Now that green shoots are sprouting like alfalfa and various institutions are hiring, it’s time to ask the inevitable? Were too many people let go?

In some cases, the unavoidable answer appears to be that they were. Most notably, convertibles desks are seeing a sudden reversal in their fortunes: 80% of staff were reportedly slashed in late 2007/early 2008; now that issuance is up, banks are hiring again.

But convertibles aren’t the only area where banks appear to be making amends for recent headcount reductions.

Last week it emerged that Bank of America Merrill Lynch is rehiring Julian Trott, its former European head of fixed income syndicate for emerging markets into a similar role as head of central and eastern Europe, Middle East and Africa DCM. UBS is rumoured to have hired in structured finance after its few remaining team members threatened to leave due to a lack of critical mass, and JPMorgan is said to have rehired a senior DCM coverage banker.

Having cut 25% of its investment bankers between the end of 2007 and the start of 2009, UBS in particular seems ill-placed to benefit from any upturn.

However, there are people who take strong exception to the notion that banks are now regretting their recent cost cutting. “It all depends whether you think this is a recovery,” says Simon Maughan, an analyst at MF Global. “It’s no good saying capital market billings are up this quarter and everything’s fine. It’s only when government spending is scaled down that the pain will really be taken.”

Comments (23)

  1. Hello Sarah,

    I understand it is your job to be optimistic about financial recruitment in the City but this article just reeks of spin.
    Have banks cut too much? Well, ask those who have been laid off if they got back in the market.

  2. Of course they have, many front-office and support teams operate on a skeleton basis, ask anyone still working in an investment bank, there are so many stories of ‘Ghost offices’. Even a small upturn in business is creation huge problems as key staff have been let go so banks are now forced to selectively hire people

    Henry for Prime Minister Reply
  3. The industry is unfortunately controlled by accountants whose vision of the future is about 3 months – of course they have cut too much, as they have in the past. Question is, will the talent that left the industry be tempted back? How will the industry plug the gaps left by the Grads that weren’t hired? People have found out that Banking (outside the Front Office) doesn’t pay as much as the myths suggested and the working culture is depressing. It will take more this time to attract people back – expect wage inflation in the next 18 months, especially amongst change people. Not only that, but the industry image has been tarnished significantly. As I have said in the past ……. the IB industry only has cash as an incentive and to compete for talent in the next 18 months, they’re gonna needs loads of it! Won’t be as easy as 2003/04.

  4. “Question is, will the talent that left the industry be tempted back?”

    You’re joking right? The transferable options from banking are horrific i.e. next to none. Most of the people let go will have been begging to get back in ever since. I should know, I was there once.

  5. Another question: had the banks not hired too much in 2004-2007?

  6. Wizard of EC1, I think you are right. Most the “talent” that left the industry will probably rather continue to be unemployed, worrying about how to pay their Chelsea mortgage and how to pay for their childrens’ education than be tempted back into that lousy job. You are right, there was never anything to it apart from the money. It was never interesting and challenging. And on the money side, why would anybody really want to get paid way more than their efforts are worth in any other industry (full disclosure: was at FO of US investment bank for many years). I am sure they are all dreaming of landing that marketing job at Procter & Gamble where they will be paid 20% of what they used to in banking.

  7. RBS aside, yes they have.

  8. “People have found out that Banking (outside the Front Office) doesn’t pay as much as the myths suggested and the working culture is depressing.”

    Got it in one, I know too many talented people who have been laid off and have no intention of going back. Without silly cash, banking is fundamentally a very dull job. Maybe now the talent black hole that is banking has fizzled people will start doing interesting stuff.

  9. Whatever – I’m not talking about Front Office, more IT change folks. There are options out there, when considered as a package aren’t too bad ( cash, working time, commute, job stability etc). Life is not just about the numbers before tax. A friend of mine has transferred into Defence consulting and reckons his pay as a Project Manager is 20% off what FS are offering ….. but the lifestyle and work environment is dramatically better and projects are funded for years into the future. Country house office in leafy Surrey or horrific hour plus commute on the Underground to the desolation of Canary Wharf – the choice is not as horrific as you may think. Perhaps “most of the people you know” need to think outside banking and stop begging :). If you don’t believe me, go to the car park of your local Defence consultancy and count the new Porches!

  10. Banks always deal in extremes – on the hiring and firing side – plus mass firings are not mission critical. When demand returns so will hiring. If you think capital markets and banking are boring away from the large pay possibility, you should do something else.

  11. Ari – change roles outside the FO are not well paid and it is my opinion that the industry is at risk of a talent issue in 18 months or so. Also, consider the “after tax” implications ( an alarming % of our comp goes back to HMRC, therefore, not worth considering aside from bragging ).The notion that people are “waiting” to get back into the industry is crazy, but I fear a number of senior managers think that people are doing just that – that is naive. People with knowledge, drive and experience have moved on by now. So dump the Chelsa mortgage for a bigger house in Gloucestershire and programme rockets not risk models. If it is a 20% differential and 10% goes to the taxman anyway, I think it is a real option. Question is – will they come back ?

  12. I don’t know where you guys work. but here there’s still FAR too many people.

  13. I think a better question should be, are banks now willing to invest in people? The downturn is really a symptom of putting people into the market who opportunistically take what they can get, at any cost. Whilst more steady and often sane people are quickly overlooked for these top jobs letting the cowboys sink the ship along the way. Maybe financial institutions should rethink their ethos and look to employ people who they can grow and create sustainability in financial markets, instead of just exploiting customers for quick profits.
    This might actually require a paradigm shift in the method of recruitment and expectations on employee’s instead of just waiting for a turn around in the market and playing musical chairs with same load of cowboy traders, back to exploit the market when their holiday fund runs out.

  14. @wizard of EC1 –

    have u ever traded a financial product or advised on a deal or raised capital for a company?

    If not, then please keep quiet. You don’t know what you are talking and posting about. We call that keyboard jockeying.

  15. Wizard of EC1 – you are spot on. I have worked 9 years FO in the City and the mood is very negative. Nobody wants to work in banks anymore, as they see it as pointless. Regulation up, pay down and tax up. Punters I know that have been made redundant have almost no interest in getting back in. Even a slight uptick in flow business and the banks are losing out on it to newly formed brokers and independents. Even people I know that genuinely enjoy the business would rather go it alone. As you say, if the banks expect there to be a long queue of people a year after huge firings to come back in are very mistaken.

  16. I worked on the IT side – Projects are now being let to fail, and you have to remember that most of the support systems are cobbled together legacy systems with a windows front end. They are inherently unstable and difficult to maintain. The banks are a disaster waiting to happen, and then all (us) IT people will ask even more to put it right.

    And by the way, there is life outside of Banking, you just have to find it.

  17. Ok, Wizard – fair point. The excessive pay packages are probably only true of the FO (yes, we are all top performers with excellent grades from top academic institutions and we have all worked hard…but come on, anybody who thinks our pay is not ridiculous compared to what people with similar skills, background and drive make in other industries…). If pay differential in IT and backoffice is only 20% (or even if more) and the work is dull, I would agree that I would probably not bother with the disadvantages of commutes, the culture in banks etc. either. It is just that pay diff of FO vs. other industries (outside of HF, PE etc.) is several hundred %, not 20% – and the work is honestly interesting (at least in the areas I have been in). Oh, and some people in FO actually have skills that are a lot less transferable than you IT guys…somebody who structured or traded CDOs for 8 years since leaving uni…not really sure what else he could be used for…

  18. The issue is not how much they have cut but who they have cut and where all the banking pariahs end up continuing their sub optimum practices for nasty ripple effects in the rest of the economy.

    Something was awfully wrong in the control and performance evaluation side of investment banking. Let us not be steered into another crisis in the same way by the same people who have already mislead us.

    Daniel Burgos Zarazo Reply
  19. Face it – we haven’t yet seen the tip of the iceberg as far as further banking redundancies are concerned.

  20. Happily sitting outside of a bank at the moment, remembering the pain of trogging in on a daily basis to run some IT project or other. Of course, these days, I’ll charge contract rates to the bank to do it and they’ll have to pay because half their IT knowledge went in 2008.

    Rates are still low at the moment and my unemployment insurance is still more than some of them being touted about, I’ll wait a while and jump back when the market is kicking off and land my self a nice two year project for 1/4- 1/2 a mil.

    But in the meantime, if I can switch industries I will, I am bored and sick of working for badly run banks, give me an industry that actually does something any day.

    IT PM in the sun Reply
  21. well after carefully reading the article i think that there are 2 things to consider, first of all, experienced workers who were laid off , those people or most of them did find a job , despite the downturn , i think that after 4 to 10 years experience , that’s what they do,,, every body knows that u don’t have to be finance graduate to work in a bank,, now the new graduates or the people who have little experience in banking are considering to change there career choice.
    to be quite honest , i can’t see the point o some one studying Physics or engineering or even history and then working in a bank???

    in the last few years , banks hired so many people. i think banks need to reconsider their hiring policy and set the records straight , especially when risk management new risk roles are being set now a days.

  22. Thoughtful – please read my post – I referred to BACK OFFICE change people, not front office and I have 10+ years experience in bulge bracket banks. Trading is not being discussed here, we are discussing FO enablers, with highly transferable skills and where the pay differential is not a barrier to exit. Google “RTFQ” before you post again.

    Ari – I think we’re in agreement. FO folks do have significant barriers to exit and structured traders are in a bad place right now.

    Others have correctly eluded to creaky settlement systems and legacy rubbish which is currently being ignored. The key to this discussion is who will be left to remediate these matters and enable the FO to enhance trading activity/ stabilise worn out systems.

    Just got of the phone from a very senior former FO type who agrees that comp growth will be in change management and he thinks 12 – 18 months. Pity that industry management can only think 3 months in advance !

  23. I just googled “talented” and it came up with “unable to find a job after the grossly overpaid one from which they were sacked after buggering up the western economy”. Given the history, the more important questions are “how can this talent be kept away from our banking system” and “how can we encourage banks to clear out their remaining talent”

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