People walking by the New York Stock Exchange.
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Less than six months ago, Wall Street bankers were too Reap the rewards From a historic breakthrough in mergers and public offerings.
Now, thanks to a combination of factors that have clouded the markets and caused most deal classes to fall this year, large-scale job cuts loom for the first time since 2019, according to industry sources.
The shift illustrates the feast or famine nature of consulting work on Wall Street. Companies were understaffed when central banks unleashed trillions of dollars to prop up markets at the start of the Covid-19 pandemic. The ensuing surge in capital markets activity such as public listings has led to a bull market for talent on Wall Street, from 22-year-old college graduates to richly compensated rain makers.
For the first time in years, bank employees appeared to have the upper hand. They opposed mandates to return to office. received Standard RewardsMultiple rounds of increments, protect time away from work and even peloton bikes.
But that’s over, according to those who put bankers and traders into Wall Street firms.
“I can’t see a situation where banks don’t do RIFs in the second half of the year,” David McCormackDMC Partners, president of recruitment firm DMC Partners, in a phone interview. The word “RIF” is industrial parlance and means “reduction of force” or layoffs.
The industry is entering traditionally sluggish summer months, due to a sharp decline in financial assets, uncertainty stemming from the Ukraine war and moves by central banks to combat inflation.
Initial public offering volumes are down a staggering 91% in the US compared to the previous year, according to Dealogic. data. Companies are unwilling or unable to issue shares or bonds, which leads to a sharp decline in capital markets, equity and debt returns, especially in higher yields, where volumes are down 75%. Acquisitions are also less likely, resulting in a 30% drop in deal volume so far this year.
Top Wall Street executives acknowledged the slowdown.
Last month , c. B. Morgan Chase President Daniel Pinto said bankers are facing a “very challenging environment” and that their fees are headed for a 45% drop in the second quarter. His boss, CEO Jamie Dimon, warned investors this month that the economy “tornado“He was on his way saying the bank was preparing for volatile markets.
Daniel Pinto, CEO of JPMorgan Corporate and Investment Bank.
Simon Dawson | Bloomberg | Getty Images
“There is no doubt that we are seeing a tighter capital markets environment,” he said. Goldman Sachs President John Waldron told analysts at a conference this month.
The industry has a track record of hiring aggressively in boom times, only to turn to layoffs when deals fizzle out. (The volatility in results is one reason investors assign less valuation to investment banks than to wealth management firms.) In the decade after the 2008 financial crisis, Wall Street firms struggled with the industry’s declining revenue pools by implementing annual layoffs targeting those firms. They are seen as the weakest performers.
Banks paused layoffs during the pandemic bull market as they struggled to fill seats amid the hiring drive. But that means they are now “fully staffed, and probably too staffed for the environment,” according to another recruiting official who declined to be named.
The numbers indicate that. For example, JPMorgan has added a network 8000 Positions in its Corporate and Investment Bank from the beginning of 2020 until the first quarter of this year. The largest company on Wall Street by revenue now has 68,292 employees, up 13% from when the pandemic began.
And the number of employees at Goldman has jumped the most in the past two years: by 17% to 45100 workers. Staff levels in Morgan Stanley jumped 26% to 76,541 peoplealthough that includes the impact of two major acquisitions.
The math is simple: Investment banking returns could plummet to nearly pre-pandemic levels, some executives predict. But all the major companies have added more than 10% in headcount since 2020, inflating the expense base.
“When banks have a revenue problem, they leave one way to respond,” McCormack said. “This is by tearing up costs.”
The recruiter said he expects investment banks to cut 5% to 8% of staff as soon as July, after the release of second-quarter results. Analysts are likely to pressure bank management to respond to environment changeHe said.
Sources close to JPMorgan, Goldman and Morgan Stanley said they believe companies have no immediate plans for large-scale layoffs in their Wall Street operations, but may reconsider staffing and expenditure levels later this year, a typical management exercise.
Banks are still selectively hiring for in-demand roles, but they are also increasingly allowing positions to be filled if workers leave, according to one of the people.
Another person said, “Business has gone downhill.” “I wouldn’t be surprised if there was some kind of staff reduction process in the October-November timeframe.”
The saving grace on Wall Street this year has been a rebound in some areas of fixed income trading. Increased volatility in interest rates around the world, rising commodity prices, and inflation hitting multi-decade highs have created opportunities. JPMorgan’s Pinto said he expects markets’ returns in the second quarter to increase 15% to 20% from a year earlier.
This one, too, may be under stress in the end. Banks will need to carefully manage the amount of capital allocated to the business, thanks to the impact of higher interest rates on their bond holdings and at an ever tighter international level. systems.
For employees who have resisted mandates to return to the office, it’s time to get back in, according to McCormack.
“The banks have been very clear about trying to get people back to work,” he said. “If you’re not stellar and continue to work from home, you’re definitely most at risk.”
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