Layoffs: Wall Street Always Tinkering with Its Portfolio

Quarterly publications from American banks have been littered with new announcements of firings. Since January, Wall Street has put some 17,000 [workers] back on the market, after having laid off more than 60,000 in 2011.

They Take the Same and Start Again

Over the course of summer 2011, American banks had been announcing numerous massive layoffs. Now, it all starts again: after receiving results from the second quarter it is the best time for Wall Street firms to warn of some new clean cuts in their workforce. Morgan Stanley, which has already fired some 3,000 people since the start of the year, has finally decided to let go of an additional 1,000 individuals between now and the end of 2012. Over at Citigroup, 350 salaried employees will soon be shown the door.

In a similar vein, Goldman Sachs has announced again that it will reduce costs by $500 million, a plan that likely includes the exit of experienced employees to the benefit of harder-working junior ones. Bank of America is viewed as still bigger, with a new economic program of $3 billion. In total, American banks announced 17,323 firings in the first part of 2012, after having already put out 63,624 people last year, according to the firm Challenger, Gray & Christmas.

Some Banks, a Priori, Are in Better Shape than Their European Rivals

We believed that American banks were better off than their European competitors. These are not only struggling to plug the sovereign debt crisis in the Eurozone, but must also trim down in certain activities to satisfy future regulations stated in Basel III, which calls for them to reinforce their own capital. This regulation applies equally to U.S. banks, who take every possible moment to delay its implementation, allowing them to win over some parts of the market, like recovering activities in financing maritime transport that certain European banks are coerced to sell.

Paralyzed Investors

The crisis of Euro debt still touches American banks as well. Admittedly, U.S. banks are not directly exposed to public debts in Spain, Greece or Italy. But the debt crises curbs investors’ appetite for risk all over the world. This weighs down stock and bond trading, as well as reduces the introduction of bonds and IPOs into the stock market.

Businesses are equally paralyzed, facing an economically morose situation that hardly augurs them to create external growth. This explains the drop in commissions charged by banks as part of their business in mergers and acquisitions. And let’s not forget the Volcker rule, which forbids American banks from speculating on their own accounts and reduces, de facto, the scope of their activities.

Drop in Market Activity

The big investment banks, like Goldman Sachs and Morgan Stanley, thus see their market activities – the heart of their profession – reduced. In the first quarter, figures from Goldman Sachs have fallen to their lowest levels since 2005. Morgan Stanley has seen its activity drop by almost 25 percent. In the second quarter alone (April to June) revenues for Citigroup fell 10 percent. The problem is that stockholders of those banks are reluctant to give up on their dividends, instead urging banks to straighten out their results. Yet, to make a profit, there aren’t 36 solutions. In the absence of growth, cost cutting is obvious.