Investment banks still stalked by lay-off fears
SCOTT REID
BUSINESS EDITOR
HUNDREDS more jobs could go at major European investment banks amid flagging revenue growth and pressure to boost returns through a clamp-down on costs.
In the last couple of months of 2004, a number of big names slashed posts and there are fears that cull will continue into the new year.
David Williams, a banking analyst at Morgan Stanley, said: "Clearly, the investment banks are not too optimistic on their revenue outlook. They rarely make job cuts if they are."
Although last year began with a string of headline-grabbing corporate mergers and acquisitions and an expectation that a more upbeat mood in equity markets would boost business, that level of activity failed to be maintained.
Last month, Dutch bank ABN Amro confirmed plans to slash a net 1100 investment bank jobs out of a total cull of 2850 that includes IT and back-office staff. Similar moves had already been announced by Deutsche Bank and Credit Suisse First Boston (CSFB), which cut 1920 and 300 posts respectively.
Meanwhile, US-based JP Morgan is in the process of cutting about five per cent of its 6000 investment banking staff in Europe.
Some firms, such as Germany’s Commerzbank, are pulling back because they lack clout, while others, like CSFB, are reallocating resources and shifting to other businesses in a bid to boost their greater earnings power.
Analysts point out that many of the cuts so far have occurred in back-office support functions rather than among bankers and traders.
Support functions could remain a target for cuts due to advances in IT and a greater use of outsourcing and also as departments such as debt and equity are brought closer together.
John Romeo of consultants Mercer Oliver Wyman believes there is still excess capacity in the cash equity market. He predicts a revision of existing models in this area by some banks, but is not forecasting a wholesale exit. This would follow a pattern seen in the foreign exchange sector, where many mid-tier players got out of the market during 2003.
Analysts agree that investment banks’ equities businesses are coming under particular pressure, due to technological change and pressure on margins.
Mark Hoge, an analyst at Lehman Brothers, said: "On the equities side, the business has not really settled down since the end of the dotcom boom and the reforms imposed by New York Attorney General Eliot Spitzer.
"Banks are still trying to decide how their equities business is going to look. Strategic decisions have to be taken in equities, who wants to be in it and who doesn’t."
There may be a glimmer of hope, however. Towards the end of 2004, it emerged that several investment banks had been snapping up additional office space in the Manhattan area of New York - a sign that sluggish employment trends among financial services companies in the US may be turning upward.
New leasings by financial services groups - not including renewals - were up by some one million square feet to the end of November compared with all of 2003, according to research by property firm Colliers ABR.
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