The Wall Street job market has stood out as a relative beacon of solidity over the past 12-to-18 months. Bonuses may have slipped by 9%, but salaries increased and total headcount increased by 4,500 over the course of 2015. This is about to change.
Renowned compensation consultant Alan Johnson – who works with most big Wall Street firms – believes that financial services organisations are going to base more roles outside of New York to cut costs. Across the whole country, there will be a reduction of 50k financial services jobs over the next 12 months, Johnson predicts, with approximately 10k of those redundancies in New York. For those who keep their jobs, their pay will drop an average of 10% over that timeframe in the U.S., he said.
“Wall Street firms are going to have to do a total cost review all across the board, including front-, middle- and back-office roles, as well as the consultants that advise them,” Johnson says.
This is a reversal of fortunes for New York, as financial services jobs have generally been increasing over the past two years. Last year, around 4,500 jobs were added, according to new figures from the New York State Comptroller Thomas DiNapoli, following a 2,400 increase in headcount in 2014.
Johnson is consulting with the large financial services organisations on what they should pay their staff, and compensation cost is a clear driver of moving jobs out of New York. In other areas of the U.S., you can expect to make 80% of what you’d earn in New York City, and employees in other lower popular offshore centres earn about 40% of what you’d take home on Wall Street, Johnson estimates.
In part, it's an acceleration of an already established trend of moving jobs to lower-cost destinations within the United States. Goldman Sachs has 2,200 people in an office in Salt Lake City carrying out operations functions, while Deutsche Bank has offices in Jacksonville, Fla. and Cary, N.C, which house both front- and back-office staff. As that trend gathers steam and New York loses jobs, other cities such as Atlanta, Dallas and Phoenix with a lower cost of living may benefit.
“It’s a cyclical industry, but this is more systemic – the industry has still not recovered from the last recession,” Johnson said. “Unless the economy recovers significantly, business is going to be just so-so, and if that’s the case firms are going to be more aggressive in getting people out of here and reducing headcount because they have to – they’re not making enough money.”
“We’ve gone from terrible to disappointing to so-so, and right now we’re stuck there, and it’s worse in Europe given all their problems,” Johnson says. “I’m not expecting much good news over the next 12 months – 2016 will end up being worse or much worse than last year."
Wall Street is not operating in isolation, of course. The whole concept of housing people in hubs like London or New York is under question. Credit Suisse has just started moving traders from London to Dublin and will be shifting most of its non-revenue generating roles out of the City and into lower cost European countries.
“It’s looking like a very tough year, and firms are going to get rid of a lot of people,” he said. “[Financial services firms] are going to be getting people out of New York and London, because they’re too expensive.”