In the wake of coronavirus lockdowns, the world’s largest investment banks presented a united front in refusing to cut jobs. A few months on and cracks are beginning to show.
Banks are facing increasing pressure to cut costs as profits have slumped over the course of 2020. While trading and investment banking revenues have surged, the largest lenders put aside a collective $139bn in loan loss provisions during the first half which have hit their bottom line and present longer term challenges to banks, many of which were already facing calls from investors to cut back.
Investment banks are expected to ramp up layoffs over the course of this year and into the next as they try to balance paying top performers with reducing expenditure, according to a report from compensation consultants Johnson Associates on 10 August. However, some have already begun to swing the axe.
“Cuts have so far been within the European banks, and even then it’s been very focused on specific product lines that have not done so well,” said Amrit Shahani, research director at data provider Coalition, which tracks employee numbers at the 12 largest investment banks.
“The headcount reductions are part of broader strategic shifts, but even after a strong first quarter few firms are hiring again.”
These are the banks currently cutting back:
Deutsche Bank
The German lender was always under pressure to resume its ambitious cost-cutting programme - which will see 18,000 jobs eliminated - after pausing its plans in March. The hiatus lasted just six weeks, with Deutsche telling staff in May that the coronavirus crisis had made it “imperative that we stick to our transformation plan announced last July.”
HSBC
When HSBC lifted its three month freeze on job cuts in June, its chief executive Noel Quinn told staff that the overhaul it announced in February - which will result in a headcount reduction of around 35,000 - was “even more necessary”. Since then, the UK lender has unveiled an 80% plunge in first quarter profits to $1.1bn and is looking for “additional actions” to cut costs beyond its initial projection.
NatWest
Natwest Markets, the investment banking arm of newly renamed NatWest, may be a shadow of the once hulking global player that was Royal Bank of Scotland in its pre-crisis pomp, but the unit is still a target for cost-cuts under recently-installed chief executive Alison Rose. Even at the height of the pandemic in early April, the bank said it was pushing ahead with 130 job cuts as part of a broader strategy to nearly halve risk-weighted assets in the unit to £20bn. It is also stripping another layer of senior management with head of trading and flow sales, Kieran Higgins and Scott Satriano, head of financial and risk solutions set to depart, according to the The Sunday Times.
Nomura
The Japanese bank laid out plans to overhaul its sales and trading unit last year, stripping out around $1bn in costs after a period of underperformance, including 100 job cuts in its London operation. However, chief executive Kentaro Okuda, who was installed in the top job in December, said in a May investor presentation that the bank was looking to “reprioritise regions and products”. The bank is now cutting around 10% of its London dealmaking team - or 45 people - with a slightly smaller proportion being laid off in the US.
Credit Suisse
After trimming its markets business earlier this year, Credit Suisse executives insist that the merger of its underperforming investment banking unit and sales and trading division, announced in July, is not about making big layoffs. However, the Swiss bank is cutting up to CHF400m ($439.6m) in costs and its CEO Thomas Gottstein admitted that “certain positions that will have to close down or move out into other areas”.
He added that the savings would be reinvested in other business lines including private banking and digitalisation. Its chief financial officer David Mathers told FN that overlapping support functions such as technology and finance would likely be scaled back.
Societe Generale
Despite a surge in trading revenues at large investment banks, French lenders including Societe Generale have struggled as their specialist structured equity derivatives units - a traditional strength - have been hampered by cancelled dividends through the pandemic causing them to slump during the first half of this year.
At SocGen, following a surprise €1.26bn loss during the second quarter, the bank unveiled a management shake-up that will see the departure of its investment bank chief Severin Cabannes. The bank plans to cut an extra €450m from its global markets division over the next three years. While it has yet to lay out a specific plan for cutting back its sales and trading arm, executives have signalled it could exit more business lines within its markets unit. This follows a redundancy programme last year, which resulted in 1,200 job losses in its investment bank.
ABN Amro
The Dutch bank has been scaling back its loss-making corporate and investment bank over the past couple of years as it retreats to its home market. However, after a review by new chief executive Robert Swaak, the bank said in its results that a further 800 roles would be lost within the division over the next three to four years as it sheds non-core units including commodity finance and its non-European corporate banking operations. This is about a third of the division’s headcount.
Perella Weinberg
Specialist boutique investment banks have struggled as the Covid-19 pandemic has put many M&A deals on ice. Perella Weinberg’s move to cut 7% of its global workforce, first revealed by FN, was driven more by a strategic overhaul than a reaction to muted deal flow caused by the crisis, according to people familiar with the matter. However, it is still the first significant redundancy programme in the firm’s 14-year history.
Cantor Fitzgerald
Cantor was another bank to unveil job cuts at the height of the pandemic, with hundreds of roles set to go across its operations globally, according to Bloombergreports. It plans to cut around 30-40 staff in its London operation across corporate broking, equity research and sales, according to two people with knowledge of the situation.
This article originally appeared on Financial News.
