Where are banks likely to hire and fire in 2018? Here's our round-up of the hiring intentions disclosed at the time of their third quarter results.
In the call accompanying BofA's third quarter results, CEO Brian Moynihan boasted that the bank has cut costs equivalent to the entire "cost structure" of Merrill Lynch since it acquired Merrill in 2008. As BofA invests in technology, including artificial intelligence, it's working to keep costs stable. Across the bank, BofA spent a huge $2.5bn on technology this year. CFO Paul Donofrio noted that savings which have been made in the banking (IBD) division have been offset by technology investments, and that BofA has been upgrading rather than making net new headcount additions.
Bank of America laid off around ten traders in September 2017. However, it could benefit from making more cuts to its markets division, where costs were 77% of revenues in the first nine months of this year, versus 65% in global banking and around 60% across the bank as a whole. Neither Moynihan nor Donofrio gave any indication that cuts are coming, however.
Barclays has been one of this year's biggest hirers. In the ten months to October, it recruited 21 managing directors, two thirds of whom went into the markets division. Tim Throsby's presentation in September suggests it hasn't stopped hiring yet.
Throsby said Barclays wants to "restore excellence" in electronic trading, to "regain a leading position" in FX and rates, and to pursue "targeted growth" in equities, prime services and credit. The implication is that Barclays could hire further in all these areas, although it may not do so this year. In the call accompanying the bank's third quarter results, CEO Jes Staley also said Barclays has been over-reliant on flow equity derivatives, whilst neglecting cash equities and that it intends to remedy this. Separately, Staley said that Barclays has "under-invested" in technology and will make amends for this too.
While Barclays is hiring, it says it won't be firing. Despite a cost ratio of 74% in its investment bank in the third quarter (up from 68% a year earlier), it insists restructuring is over. “You cannot cut yourself to glory and those that try will ultimately fail,” said Staley. Instead of cutting heads, Barclays is cutting bonuses.
BNP Paribas has been hiring in 2017. The French bank has a 5% annual growth target for its global markets business between now and 2020 and has been recruiting in fixed income. Most recently, it recruited Deutsche Bank's former head of inflation trading. It's also added in credit and emerging markets.
BNP's new recruits look more like upgrades than net headcount additions, however. Whilst bringing new people in, it has also been letting existing people go, the most recent exit being Simon Birch, the former head of emerging markets fixed income trading, who left last year.
For a bank that prides itself on its cost efficiency, BNP's global markets division is starting to look a bit flabby. In the third quarter, costs rose to 77% of revenues, up from 71% a year earlier.
Fortunately, therefore, BNP is in the process of a cost cutting programme. In its third quarter presentation, it said it has around €200m of costs to cut before the year is over, half of which are likely to be extracted from the investment bank. Fixed income traders should probably be worried.
Citi's institutional clients group (its investment bank) has had an exceptional year and outperformed all its rivals. The bank has spent the last few years bolstering its equities trading business and in Citi's third quarter investor call CFO John Gerspach said he was pleased with its progress and with the 30% combined revenue uplift between equities trading and equity capital markets compared to the previous year. Unlike Thiam at Credit Suisse, however, Gerspach didn't say equities hiring at Citi is now over.
Gerspach also didn't say that Citi is hiring in credit. However, as we reported yesterday, Citi has gaps to fill because its senior credit traders are defecting to Nomura.
There was no mention of cost cutting in the bank's third quarter presentation, even though Citi said previously that it wants to shave 70 basis points off expenses in the investment bank by moving staff to low cost locations. At 67% of revenues in the first nine months of the year, costs in Citi's institutional clients group were some of the lowest in the market.
Credit Suisse wanted to keep costs in its global markets division below CHF4.8bn last year - a reduction of 11% on 2016 and 45% (yes!) on 2015. It has been on track to do this. In the first nine months of the year, global markets costs were CHF3.7bn, implying that Credit Suisse can spend CHF1.1bn in Q4 2017, down only slightly on the CHF1.3bn it spent during the same period last year.
Despite cutting costs viciously, Credit Suisse has been expanding headcount. In October 2017 it had 80 more people in global markets than in October 2016, and 350 more people in the investment banking division. It also had 750 more people across all business in Asia Pacific.
How can CS cut costs and hire? Simple: its cost cutting focus is contractors and consultants. In the year to October, 3,050 contractors and consultants were let go. As one Credit Suisse contractor pointed out this week, this is causing consternation among contractors still at the bank, who claim it's cutting too deeply and that working there has become a misery.
While Credit Suisse is cutting contractors, its hires in global markets have been particularly focused on equities, where it's been hiring heavily from UBS. However, in last quarter's analyst call CEO Tidjane Thiam said the bank's equities hiring is over and that CS is now waiting for revenues to come through in the next 18 to 24 months.
Separately, Thiam said Credit Suisse has been hiring for a new "compliance lab" which houses 18 PhDs and 54 people with masters qualifications. This appears to be the new, new thing at CS, and hiring there may well continue. It is likely to be to the detriment of other Credit Suisse compliance and control staff, however: at the bank's November investor day, CS said it plans to cut around 45% of staff in this area in the next 12 months.
Deutsche Bank has a cost problem. In the third quarter of 2017, costs ate 87% of revenues in its investment bank, up from 74% a year earlier. And things threaten to get worse.
As Deutsche CFO James Von Moltke pointed out in the bank's third quarter call, Deutsche has committed to actually paying bonuses this year, meaning that compensation costs will rise in the fourth quarter compared to 2016 (when it didn't).
Naturally, there is a way around this, and that is to cut heads and pay those who remain. This is almost certainly what Deutsche will do. The bank already says it's made cuts from its fixed income sales and trading staff and CEO John Cryan said today that Deutsche employs far too many people. Deutsche's overall headcount of 97,000 could be halved by technology, said Cryan, adding that the bank has too many people in back office functions compared to front office functions. Following earlier suggestions by Cryan that Deutsche employs a lot of accountants who are performing the tasks of an abacus, the implication is that Deutsche is going to do something harsh with people working in support roles.
While Deutsche is culling its middle and back office staff and replacing them with automated systems, it's likely to add front office staff in the U.S. Cryan has reportedly called in McKinsey & Co. to help him turn the bank around and McKinsey and Co. say conquering the U.S. market will solve all Deutsche's problems.
Goldman Sachs has got big expansion plans. Outlined by Co-COO Harvey Schwartz in September, these plans involve chasing $5bn+ in revenues over the next three years, split between fixed income currencies and commodities ($1bn+), lending and financing ($2bn), investment banking and coverage ($0.5bn) investment management ($1bn) and equities ($0.5bn).
To this end, the firm is hiring. Most importantly, it's hiring "laterally" as it brings in experienced people from rival banks. In the bank's third quarter call, Schwartz said Goldman has doubled its lateral hiring this year compared to last and that the hires are weighted to "sales distribution" after the bank said it wanted to increase its penetration of corporate clients. Many of Goldman's hires have been at executive director and managing director level. After culling 30% of its credit sales and trading professionals between 2012 and 2017, Goldman has a particular need to hire in flow credit.
As Goldman goes for growth, no mention was made of cost cutting. This doesn't mean it's not happening. Fox Business reported last year that the bank is quietly pulling out of listed equity derivatives trading in the U.S.
Cost cutting is supposed to be over at J.P. Morgan, investment bank CEO Daniel Pinto said last year.
However, J.P. Morgan's sales and trading business didn't do well in the third quarter and the bank may well be tempted to take costs out before December - particularly as CFO Marianne Lake warned that fourth quarter sales and trading revenues are also likely to be down on previous year.
J.P. Morgan is working hard to automate as much of its investment bank as possible. The bank as a whole already spends $9.5bn on technology and one of Pinto's insiders is David Hudson, the head of markets execution who says the bank has done too much to protect employees in the past. Last year, Pinto promoted Samik Chandarana, a former credit trader and J.P. Morgan veteran, to the role of developing the bank’s data and machine learning strategies. This follows the success of David Fellah, a member of J.P. Morgan’s European equity quant research team, who developed LOXM, J.P. Morgan’s new self-teaching trading algorithm, which can execute large and complex equities trades.
Morgan Stanley has no need of making cuts to its 'institutional business.' CEO James Gorman says the bank's 72% efficiency ratio is below its 74% target and that its "project streamline" expense savings are coming to fruition.
Morgan Stanley hasn't been a big hirer this year. However, Gorman suggested things may have been happening behind the scenes. Morgan Stanley is "driving electronic transformation" in its investment bank, said Gorman and building a platform that will last for the next decade. Expect technology hiring then.
UBS has also finished cutting heads in its investment bank for the moment. Andrea Orcel said last year and UBS added 81 people in its investment bank (many of whom are likely to have been recent graduates) in the third quarter. of 2017. In the same period, costs consumed 85% of revenues in the investment bank, down from 91% a year earlier.
Even so, UBS could potentially benefit from taking some more costs out of its investment bank, where its cost ratio remains high relative to rivals.
Ultimately, this is likely to happen through automation. UBS CEO Sergio Ermotti has said that 30% of jobs at the bank could go in the next decade due to automation. Another UBS executive told Bloomberg it's more like 40% in as little as four years.
Accordingly, UBS used its third quarter presentation to say that it has increased its spending on regulation and technology in the investment bank by 8% in the past year. As at other banks, technologists and compliance professionals (especially technologists working on compliance technology) are the people of the moment.
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