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Everything you need to know about the strategic priorities and redundancies at six of the investment banks you’re thinking of joining out of university



If you’re joining an investment bank later this year, either as a full time graduate hire or as an intern, you may be feeling a little concerned. As you probably know, the financial services industry globally has been making hundreds of thousands of redundancies globally and some investment banks appear to be suffering from unsustainable cost bases.

On the whole, investment banks don’t let go of their first year graduate and MBA hires – doing so is seen as counter-productive because it will put students off joining them next year. But anecdotally it does sometimes happen. The reality is that a degree of job insecurity and long hours are the flipside of the high pay on offer in investment banking.

For your information, therefore, this is the first of two articles showing where the biggest banks are now in terms of how much of their revenues are being spent  on costs and what they’ve said about their strategic priorities and job cuts. If you’re joining as an intern or full time hire in 2012, it’s probably too late for this information to make much difference – but at least you’ll have an idea where things stand.

1.  Bank of America Merrill Lynch

Cost ratio in the investment bank: Across 2011 as a whole, costs in Bank of America’s banking and markets division (its investment bank) accounted for 77% of its revenues.

Redundancies: Redundancies are expected in the investment bank  as part of ‘Project Bac’. Altogether, this is expected to affect 30,000 people working for the bank, although only a small proportion will be in the investment bank. It may not be clear which investment banking staff are going until September 2012.

Strategic priorities: Bank ofAmerica had a few problems with its trading business last year, but these are apparently all now under control. It’s invested a lot in building up its European M&A business after senior staff left following the Merrill Lynch merger.

Other stuff you should know: Bank of America has been keen to grow its international presence outside America in recent years. This may dissuade it from cutting too heavily in Europe when the Project Bac plan is finalised.

2. Barclays Capital

Cost ratio: Barclays boss Bob Diamond has said he wants the cost ratio at Barclays Capital to go no higher than 65%. However, in the most recent three months for which figures are available, it was above this. One analyst is predicting the cost ratio will be as high as 90% for the final three months of 2011.

Redundancies: Yes, BarCap is making redundancies – but not many. In August, it said it would let go of 400 people. Recruiters say BarCap has been letting people go in dribs and drabs, which means it doesn’t need to publicize its redundancies.

Strategic priorities: BarCap has traditionally been strong in fixed income and has spent the past few years building its equities and M&A businesses.

Other stuff you should know: BarCap’s equity business probably isn’t profitable yet, say analysts. It’s unlikely to pull out altogether like RBS, but it may need to make some hard choices.

3. BNP Paribas

Cost ratio in the corporate and investment bank: BNP’s cost ratio is usually low for the investment banking industry (suggesting redundancies should be less necessary). In the first nine months of 2011, it was 56%.

Redundancies: Last November, BNP announced it was cutting 1,396 jobs from its investment bank.

Strategic priorities: Helpfully, BNP also outlined which areas it intends to cut people from. Most of its cuts are in structured finance (eg. Credit derivatives), support functions (eg operations), and other derivatives. It’s making a lot more redundancies abroad than in Parisand isn’t making hardly anyone redundant in M&A.

Other stuff you should know: As with SocGen, BNP’s future will be affected by the French political situation. President Sarkozy has said he wants to implement a transaction tax in Paris (unilaterally if necessary), which could lead French banks to shift jobs to London. Equally, socialist presidential candidate Francois Hollande has threatened new bank taxes if he’s elected this summer.  This could lead to French banks cutting their investment banking arms further.

4. Credit Suisse

Cost ratio in the investment bank: Credit Suisse seriously needs to cut its costs. In the last quarter for which it reported (the third quarter), the cost income ratio in the investment bank was 105.3%.

Redundancies: Yes. Credit Suisse announced 2,000 redundancies last July and another 1,500 in November. Anecdotally, it’s let go of a lot of senior staff in its London fixed income trading business, especially in rates. 

Strategic priorities: Credit Suisse may be cutting jobs, but it’s also planning to invest and grow, meaning some business areas will be better to join as a graduate than others. Growth areas include: Foreign exchange, global rates (including electronic trading), commodities, prime services, simple derivatives trading on exchanges and sold to corporate clients, equity underwriting (ie. ECM). By comparison, Credit Suisse wants to ‘downscale’ in commercial mortgaged backed securities and some securitized products and to ‘improve its efficiency’ in M&A in Europe the Middle Eastand Africa (EMEA).

Other stuff you should know: Credit Suisse has let it be known that it won’t automatically be increasing juniors’ pay each year any more . Credit Suisse is also in the process of combining its private banking and investment banking operations divisions, which may mean you join in a period of uncertainty if you’re working in ops.

5. Citi

Cost ratio in the investment bank: 65% for full year 2011

Redundancies: Citigroup is making redundancies too. In December, the bank said it would be cutting 4,500 jobs in total.This may increase. Last week, Citi CFO John Gerspach made an ominous presentation in which he said the cost structure in the investment bank could not be justified by the current revenues.

Strategic priorities: Citi did a lot of hiring for its European investment bank last year, and this seemed to pay off in terms of revenues.  The bank is engaged in an ongoing ‘re-engineering’ programme to cut costs by at least $2bn annually, so you probably don’t want to be going into an operations job which could be automated. In the most recent quarter, it did particularly badly in equity derivatives.

6. Deutsche:

Cost ratio in the investment bank: The cost income ratio in Deutsche’s corporate and investment bank was 71% in the first nine months of 2011.

Redundancies: Deutsche said last year that it was making 500 redundancies, which is comparatively few compared to rivals.

Strategic priorities: Last time Deutsche made an investment bank-specific investor presentation (June last year) it said it wanted to hire people for: corporate finance, commodities, equities and ‘infrastructure’ (ie operations and technology).

Other stuff you should know: Deutsche CEO Anshu Jain says Deutsche is winning share from competitors. He also says plenty of people still want to work there.

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