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发帖数: 2031 | 1 BY SUSANNE CRAIG
Illustration by The New York Times
Wall Street plans to get smaller this summer. Faced with weak markets and
uncertainty over regulations, many of the biggest firms are preparing for
deep cuts in jobs and other costs.
The cutback plans are emerging even as Wall Street firms have mostly
recovered from the financial crisis and are reporting substantial profits
again. But those profits are not as big as they were before the crisis, and
it is expected that in the coming months it will be even more difficult for
firms to make money. Worries about debt in Europe and the shape that the
Dodd-Frank financial overhaul rules will ultimately take, combined with the
usual summer doldrums, are prompting banks to act.
“It’s a tense environment right now,” said Glenn Schorr, an analyst with
the investment bank Nomura.
Even Goldman Sachs, Wall Street’s most profitable firm, is retrenching.
Senior executives at Goldman have concluded they need to cut 10 percent, or
$1 billion, of noncompensation expenses over the next 12 months, according
to a person close to the matter who was not authorized to speak on the
record. The big pullback will cause Goldman employees, who have already been
ordered to cut costs, to re-examine every aspect of their business.
The firm, this person said, had not set final targets for layoffs, but
Goldman was “certain” to shrink headcount in the coming months. Decisions
on bonuses are still months away, but they are sure to come down as well if
business does not pick up.
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Bank of America is also examining its expenses and is likely in the next few
months to cut some staff members from its securities division, according to
one senior executive at that firm who was not authorized to speak on the
record. And Credit Suisse is in the process of identifying people to cut in
its investment banking unit, according to a person briefed on that bank’s
plans.
Morgan Stanley is expected to cut at least 300 low-producing brokers in its
wealth management division this year, more than the firm initially expected,
and has announced plans to cut $1 billion in noncompensation expenses over
the next three years. Unlike many of its rivals, however, the firm so far
has no plans to cut staff members from its investment banking and trading
division, which has added hundreds of employees over the last two years or
so as part of a rebuilding effort after the financial crisis.
Scott Eells/Bloomberg News
In the first quarter of 2009, Goldman Sachs, above, cut staff by almost 9
percent. Since then, most firms have held steady. That will change this
summer.
Some firms have already wielded the ax. In January, Barclays Capital cut 600
people, or more than 2 percent of its worldwide staff, citing a business
slowdown, and recently cut more employees for “performance-related reasons,
” according to a person briefed on the cuts but not authorized to speak on
the record. A third of the January cuts were in New York.
Regulatory overhaul has weighed on the decisions to cut back, senior bank
executives say. Regulation has caused some Wall Street banks to exit some
businesses, like proprietary trading. Rules that require banks to hold more
capital will probably cause some firms to end certain business lines as they
decide they can more effectively deploy the capital elsewhere. On products
like derivatives, firms will lose revenue as instruments once traded off
exchanges will move into open markets.
While many financial rules are still to be written, some firms have decided
that they cannot afford to wait any longer. The last significant
industrywide job cuts were in early 2009. In the first quarter of that year
Goldman alone cut its work force by almost 9 percent. Since then, most firms
have held steady on their head counts or have added to them slightly. That
will change this summer.
The scale of the expected cuts is bad news for the New York City economy,
which depends heavily on a booming financial industry to pay taxes and fill
its restaurants. And they will come as the national economy is still
struggling to find its footing since the financial crisis.
Not all is doom and gloom. Wall Street is benefiting from the boom in social
media and technology public offerings. In recent weeks big names like
Pandora Media and Linkedin have gone public, brought to market by banks. So
far this year, companies have raised $29.3 billion in public offerings, up
more than 200 percent from a year ago. This year is on track to be the most
lucrative since the technology boom in 2000, according to Thomson Reuters
data.
The profit picture is also somewhat more stable for diversified companies
like JPMorgan Chase, Bank of America and Citigroup, which have large
commercial retail banking operations in addition to those in trading and
sales. JPMorgan has no immediate plans to cut head count in trading,
according to a person briefed on the matter but not authorized to speak on
the record. The bank is, however, trying to reduce noncompensation expenses.
But firms like Bank of America are still paying for mortgage sins of days
gone by, which have dimmed their profit pictures. Earlier this year Bank of
America put aside another $1 billion to cover claims from outside investors
who lost money and want the firm to buy back billions of dollars in bad
Countrywide Financial mortgages. The Durbin Amendment, a proposed
restriction on debit card fees, is also expected to reduce profits when it
comes into effect next month.
For those firms that depend on trading, it is clear how much the engines of
Wall Street have slowed. Return on equity, the amount a firm earns on its
common stock outstanding and an important measure of financial performance,
has decreased significantly in the years since the credit crisis.
Industrywide return on equity was 8.2 percent in 2010, down from 17.5
percent in 2005, according to Nomura.
And this year there is another reason that is prompting Wall Street to act
more swiftly on cuts. Wall Street typically pays out roughly half of its
revenue in compensation, and firms often wait until late summer to cull
staff when they have a better sense of revenue for the year. The newest cuts
are expected to come earlier this year because of recent changes in the way
employees are paid.
Traditionally, Wall Street employees get most of their annual pay in the
form of a one-time year-end bonus. But after the credit crisis most firms
changed the way they compensated employees in an effort to discourage
excessive risk-taking, increasing base salaries while reducing performance-
related payments. As a result, banks are paying out more compensation as the
year goes on, forcing firms to re-evaluate staffing levels earlier in the
year because more of their compensation costs are now fixed.
Firms are also trying to cut noncompensation expenses and are looking for
ways to cut fat. Goldman’s goal to cut $1 billion in noncompensation
expenses this year is significant, analysts say. There will be immediate and
significant savings from the fall off in trading volumes.
Trading firms pay fees to trade, and lower volumes could result in an annual
savings of $200 million at Goldman alone, one analyst estimated. Those
savings will come naturally, but most will not, and banks will be forced to
rein in everything, including travel and professional fees. |
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