Wall Street’s Trump bonanza won’t avert job cuts at banks in 2017

Employment at big US lenders has been falling since the financial crisis, first because of consolidation, and then as legal bills piled up and revenue stagnated


Firms including Bank of America and Morgan Stanley are in the midst of cost-cutting plans. Photo: Bloomberg
Firms including Bank of America and Morgan Stanley are in the midst of cost-cutting plans. Photo: Bloomberg

Bank stocks are on a tear after Donald Trump’s victory drove up expectations for the industry’s profits. Here’s the catch for many people working there: Holding onto their jobs won’t be any easier.

While lower taxes, higher interest rates and lighter regulation under Trump could help boost US banks’ earnings by a median 22% in 2018, firms will keep chipping away at costs by using technology to replace traders and branches, analysts at Morgan Stanley said this month. And though rising rates may fatten lenders’ profit margins, they can slow demand for new mortgages and corporate debt issuance. Again, that means fewer staff needed.

“It’s hard for me to imagine a job expansion in finance,” said Fred Cannon, head of research at Keefe, Bruyette & Woods. Profits from “higher interest rates will flow to the bottom line without an increase in expenses.”

Employment at big US lenders has been falling since the financial crisis, first because of consolidation, and then as legal bills piled up and revenue stagnated. While the pace of firings has been slowing across the industry, falling below 19,400 in this year’s first 10 months, analysts say there’s still no rebound in sight as automation continues. Firms including Bank of America Corp. and Morgan Stanley are in the midst of cost-cutting plans they aren’t likely to drop, even as the Trump rally signals higher revenue.

The billionaire mogul’s election to president in November led many analysts to revise their predictions. That marked a reversal from the start of the year, when bank stocks tumbled and CLSA Ltd analyst Mike Mayo said odds were rising that investors would push Bank of America to restructure, potentially breaking apart. About six months later, a 264-page research note from Berenberg Bank said US banks were “marooned” in a sea of debt and low interest rates that would last years.

Now analysts including Paul Miller of FBR Capital Markets & Co. say they are more optimistic about bank stocks than any time in the past decade. Despite the 22% surge in the KBW Bank Index since the election, shares can rise further as the new administration’s policies take shape, he said.

While banks will reduce tellers and other branch employees, they’ll hire loan officers and commercial bankers if demand increases because of economic growth, according to Kevin Barker, a Piper Jaffray analyst. Firms also will hire more programmers and cybersecurity personnel, he said.

“Banks will need to continue to catch up to the technological advances in fintech, whether its in payments or online lending,” Barker said.

There are risks that the euphoria around bank stocks could be short-lived. Nobody knows how significantly Trump’s administration will ultimately rein in financial regulations. If interest rates rise too quickly, credit losses could mount and depositors might move accounts to chase higher interest rates, driving up funding costs.

Still, for the first time in years, being a bank analyst is fun again, said Cannon, as investors take more interest in the latest hot sector.

“Suddenly you have portfolio managers without much of a position in financials needing to own them going into the end of the year,” he said. “The phones are ringing a lot more now.”

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