Job cuts are hitting Wall Street once again. Several investment banks are starting to layoff their workers, scrambling to cut head count and compensation costs in the face of slow economic growth and lower profits, according to today's New York Times.
A number of leading banks -- including Goldman Sachs and Credit Suisse as well as HSBC and Lloyds Banking Group -- have begun what is expected to be the first wave of layoffs this week.
Goldman revealed, in a filing on Wednesday with New York State, that it planned to lay off 230 employees in New York City, as reported by the New York Times. Goldman said layoffs would begin at the end of September.
Wall Street has been through boom and bust cycles before, where firms staff up and then when volumes and profits decline, they layoff workers. But this current wave of cuts is related to broader economic slowdowns that are hovering like a cloud over the industry.
From the New York Times DealBook:
Goldman's decision to cut staff comes as no surprise. Faced with weak markets, storm clouds in Europe and uncertainty over regulation, business on Wall Street has slowed significantly in recent months. DealBook reported earlier this month that Goldman plans to cut headcount and hopes to lower its noncompensation expenses by 10 percent, or $1 billion, over the next 12 months.
While the percentage of staff that Goldman is cutting is small, this could be the tip of an iceberg.
The firm listed "economic" as the reason for cutting the 230 people, less than 1 percent of the 35,400 it employs around the world. The firm however is expected to cut more staff in the coming months.
One of the main reasons for the job cuts is regulatory uncertainty over the final rules for derivatives and proprietary trading, two of Wall Street's most profitable businesses. With the Volcker Rule pending, firms have been spinning of their prop trading desks. The other factor is the decline in U.S. equity trading volumes.
Average daily equity volume last week was 7.5 billion shares, down 22.6% year over year, and down 0.5% sequentially, according to Barclays Capitals economic weekly volume analysis released on Monday. NYSE-listed average daily volume across all market centers was 3.9bn shares, down 28.6% y/y. Nasdaq-listed average daily volume was 2.3bn shares, down 11.7% y/y.
Also, trading has become more automated driven by algorithms, so banks are more able to manage the workloads when volumes return. Firms can also automatically provision their servers running thousands of algorithms in data centers, so the machines are capable of doing the work without human intervention.
In the past, when the bulge bracket cut jobs, their competitors took the opportunity to hire talented individuals from the bigger firms. When Lehman and Bear went bust, other big banks like J.P. Morgan and agency brokers and fixed income boutiques saw the opportunity to pick up experts say in credit derivatives.
Will we see this again? That's the $64 billion question. Will these smaller niche players seize the moment to hire seasoned Wall Street sales/traders, analysts and M&A bankers?