Investment banks are shedding staff again. It’s not unusual to do so at the start of the year. But the collapse of the subprime mortgage market, the attendant multi-billion-dollar losses, and the fear that a US recession is looming add to the sense that this is not a one-off bit of trimming. Just how many more jobs will be lost could be Wall Street’s next big guessing game.
Sure, there’s still some juice left in divining the size of yet more write-downs on subprime-related assets. After all, Citigroup Inc. alone still has some $30 billion (Rs1.18 trillion) of exposure to mortgage heavy collateralized debt obligations. But that now feels a bit old hat.
Job cuts, on the other hand, are just beginning, and with the exception of bonus banter, are probably the ultimate example of Wall Street navel-gazing.
Of course, there may be nothing to read into the most recent announcements. Goldman Sachs Group Inc.’s decision to offload 1,500, or 5% of its workforce, could very well be the annual ousting of its worst performers.
Morgan Stanley’s 1,000-person haircut could just be more rationalizing of its previously underperforming wealth management unit.
And Bank of America Corp. (BoA) could be using its collateralized debt obligations woes as an excuse to offload long unprofitable chunks of its also-ran investment bank. BoA is looking to cut 650 jobs, while Credit Suisse Group is looking to trim its workforce by 500 employees.
But it smacks of the beginning of a wider cull. If so, the cuts seem to be starting earlier than in the last downturn: The likes of Goldman and Lehman Brothers Inc., for example, were still adding staff in 2001, months after the tech bubble popped, even as net income per employee fell.
Being quicker on the draw may be of some small comfort to shareholders. But if worse times are ahead, there’ll be more rounds to come. Around six years ago, JPMorgan Chase and Co.’s then-chief William Harrison promised not to cut into the bank’s muscle; later, announcing more layoffs, he said he hoped he wasn’t cutting into the bone.
Those are hardly encouraging words. But it’s a fair bet Wall Street is already starting to wonder who’ll be the one to utter them next.