It hasn’t been a great year. 2011 started well, with optimism that the climate of 2010 would persist. In 2010, every large bank was an in growth mode: BarCap added 1,600 people, Goldman Sachs added 3,200, Deutsche added 1,800, Credit Suisse added 1,200 and UBS added 1,700.
However, instead of consolidating 2010’s gains, 2011 has been about rethinking and retrenchment. It has been a year of firing, not hiring.
The reason for this is clear. Since May 2011, the markets have been roiled by concerns about the sustainability of Greek government debt and the sustainability of government debt in larger and more challenging economies such as Italy. With France’s triple A rating under threat as the year draws to a close, the problems of the eurozone are far from being resolved.
Throw in banks’ increased capital requirements, falling margins and falling returns on equity, weak GDP growth, and the fact that clients are in ‘fetal position’ and unwilling to trade or do deals, and it’s not easy to see why banks are unwilling to take on additional staff and costs. Most banks imposed hiring freezes over the summer. Hiring turned – very suddenly – to firing.
As a result, a lot of people had a difficult time this year. Headhunters have taken to sending Christmas cards saying, “I hope you’re coping in this challenging period.” Everyone’s had a bad time, but when it comes to competitive pain, who's had the worst? Well...
Equities professionals really have had a year of two halves. At the start of 2011, many banks continued to see cash equities as a strategic priority. As such, there was hiring in sales, trading and research – but especially in research, with RBS, Nomura, Evolution Citi, Evercore, and HSBC all said to be hiring.
However, as the eurozone crisis took hold and equity trading volumes fell, equities commissions didn’t manifest as expected. By the end of 2011, equities teams were at the forefront of job cuts. Unicredit pulled out of Western European equities sales and trading, with the loss of 150 jobs. Investec/Evolution cut more than 100 staff. Jefferies is said to have cut equities staff, as have Nomura and Bank of America Merrill Lynch. Around 60-70 cash equities people are thought to have lost their jobs at MF Global.
A a result, there are a lot of equities people on the street.
It wasn’t just equities jobs that disappeared in 2011.
In October, the UK’s Centre for Economic and Business Research suggested that 27,063 City jobs inLondon would disappear between 2010 and 2012 and that even in 2016, employment would remain below the level of 1999.
In November, Bloomberg estimated that 200,000 financial services jobs had been lost globally – more even than the 174,000 that went in 2009.
As costs spiraled out of control, every bank made redundancies. Some, like Citi, announced one round of redundancies only to ramp up the number of job cuts a month or so later (after saying, in July, that they still had hiring to do). Others, like Morgan Stanley, held off making redundancies and suddenly declared they’d be making cuts in the first quarter of 2012.
Notably, however, even though the job cuts felt painful, many banks only made surface wounds. Credit Suisse cut 16% of its investment bankers, but Morgan Stanley’s 1,600 job cuts amounted to only 2.6% of its total headcount. Similarly, Citi’s 4,500 job cuts amounted to only 1.7% of its total headcount.
The redundancies led to dire pronouncements from old hands. “There is, and has been for some time, a surfeit of people working in this sector. Now is the time the chaff will be discarded and, certainly for the older generation, it is likely they will not work in the City again,” one ‘head of sales’ told Financial News.
While some banks only made surface wounds, others indicated a willingness to sever entire limbs and retrench from full-bodied investment banking aspirations. Nomura and UBS were in the latter categories.
Having spent several years building its European investment bank after 2008, Lehman finally called the expansion a day in November, when it lost patience with the unprofitable European unit and announced a $1.2bn cost cutting exercise, focused disproportionately upon London. Nomura employs 4,436 people in Europe. Our calculations suggest it would need to get rid of 3,400 of them to make the savings it requires.
Following the disastrous Kweku Adoboli affair and the loss of Oswald Grubel, the chief executive who had presided over the expansion of its investment bank, 2011 also led to a dramatic shift in strategy for UBS.
UBS has now dropped its aspirations to be a world leading investment bank and is focusing purely on being an investment bank with synergies to its private bank. As new chief executive Sergio Ermotti insisted at the investor day in November, the strategy is “quite radical.”
UBS plans to reduce its risk-weighted assets by 45% by the end of 2012 and by 80% by the end of 2013. Ermotti unveiled the new strategy for the investment bank at the November Investor Day. At only 1,300, job cuts aren’t huge yet, but they may increase in 2012.
2011 wasn’t the year to be working at one of the smaller brokerage firms that did so well in the aftermath of the crisis of 2008. Altium and Religare both pulled out of London (even though Religare blithely hired 6 people as recently May) and Tim Linacre, who’d worked at Panmure Gordon for 21 years and been the chief executive for 6, stepped down as the broker prepared to make a loss
2011 was a bad year for Bank of America and a worse year for anyone working at Bank of America with deferred stock bonuses from times past. Between January and late December, the bank’s share price fell 70%.
Nor was 2011 a good year for anyone working in carbon trading. As the year progressed, the price of carbon collapsed. Banks like JPMorgan cut jobs in response.
“People are leaving the industry because they’ve been fired or because they see no prospects,” said Emmanuel Fages, head of energy research for Europe at Societe Generale in Paris, told Bloomberg.
There was a time when French banks were seen as nice steady, stable places to work, where jobs were comparatively secure and everyone had an hour for lunch and a holiday home in St Tropez.
As 2011 progressed, it became apparent that this was no longer the case. As concern about French banks’ exposure to European debt grew, so did concerns about French banks themselves.
In September, Mohamed El Arian argued that French banks could be the lever that tips Europein a full blown recession.
BNP Paribas, SocGen and Credit Agricole, each responded with plans to slash jobs and risk weighted assets. In November, BNP announced 1,400 job cuts at its corporate and investment bank. In December, Credit Agricole announced 1,700 cuts. SocGen is making, “hundreds” of cuts in its investment bank. As ever, a high proportion of the cuts will fall in London rather than France.
Equally concerning, is the prospect that deferred bonuses at BNP Paribas will be clawed back next year.
As banks sought to cut costs, contractors and their pay were an obvious source of easy savings. BAML sent its contract staff a nasty email several weeks before Christmas intoning them to accept a rate cut or face redundancy.
BarCap, Deutsche, Nomura, RBS and Lloyds all cut their contractor rates a few weeks prior to this point.
2011 was a particularly bad year to be working in credit, particularly structured credit. As banks cut capital heavy businesses, credit was one of the big losers. Hence, Credit Suisse, UBS, BAML, and RBS all swung the axe especially vigorously in the vicinity of their credit teams.
“I know some people who were laid off from structured credit jobs in 2008 and are still looking for work,” one headhunter told us depressingly.
Rates teams underwent a sudden reversal in fortune in 2011. In 2010, government bonds and rates were burningly hot with Jefferies,Santander, Daiwa, Citadel, Scotiabank, RBC and MF Global all hiring.
In 2011, rates teams – with credit teams – were freezingly cold and at the forefront of cuts. Hence, Credit Suisse wiped out its government bonds and rates trading team and UBS obliterated its prop-focused macro directional trading team.
Suffice to say, it was not pretty for MF Global. At March 2011, MF Global had 738 people working for it in Canary Wharf. By November, they were all wondering what to do next.
In December, The Telegraph reported there had been “no viable bids” for any of MF Global’s units.
Arguably. 2011 wasn’t a great year to be comparatively rich. Seeds of future trouble were sown with the Occupy Movements and the anti-1% rallying cry. In the US, two thirds of people ended the year in favour of higher taxes for the 1%.
In the UK, anyone earning £149k or more (gross) is in the 1% category. Those in the 0.5% might consider this a modest income. The remaining 99% would generally disagree.