Wall Street Layoffs: Meredith Whitney’s Case for a Bloodbath
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By Michael Corkery / WSJ Sept 9, 2010
High-profile hires, August’s M&A splurge and the boom in corporate debt issuance.
While some things are looking up on Wall Street, analyst Meredith Whitney has some advice: Don’t believe the hype.
In a report distributed to her clients and obtained by Deal Journal, Whitney says Wall Street’s mega investment banks are undergoing “structural changes” not seen since the bursting of the Dot.com bubble.
In the 38-page report, Whitney, who gained notoriety for her 2007 call that Citigroup was undercapitalized, lays out a gloomy scenario for the whole industry. Here are the highlights (or low lights):
–80% of Wall Street’s core revenue comes from underwriting and advisory activity in the U.S. and Europe, which are in “secular decline,’’ as those economies stall.
–Deal activity may have picked up recently, but M&A revenue isn’t a big part of investment banks’ revenue–only 8% on average.
–Layoffs are coming. Layoffs are coming. Forget those high-profile hires , such as CIT Group’s former CEO Jeff Peak landing at Barclays or American International Group’s former chief Martin Sullivan going to the Willis Group, the legions of lower level traders, analysts and salespeople may be in for a rude awakening. Whitney expects lay offs of 40,000 to 50,000, or 5% to 10% of the U.S. securities industry.
–Consumers and banks continue to delever. Sure, investment-grade companies like Hewlett Packard and Home Depot are taking advantage of the low interest rates to refinance or sell new debt. But banks are paring back their leverage because their largest customers–the U.S. consumer–are doing the same.
–The one relative bright spot are the emerging markets, but activity there isn’t robust enough to offset the slowdown in U.S. and Europe. Some banks with more international exposure should be better positioned than U.S.-centric firms. Goldman Sachs has only half of its capital allocated to the U.S. and Citigroup has only 39%. On the other extreme: Bank of America has 82% exposure to the U.S and Morgan Stanley has 70%.
For Wall Street bankers, it might be a good time to start considering that career move to Beijing or Rio. |
