New York, NY – Last week, an article out of the UK revealed that investment bank, Jefferies & Company is planning to cut its London-based research staff due to weakness in equity trading volumes, lower investment banking fees, and higher regulatory requirements. Jefferies is the latest major bank to announce such planned reductions.
Jefferies, which is reported to employ approximately 230 analysts around the world, is expected to cut a number of equity research analysts – primarily in London – in an effort to reduce costs. In addition, the firm is expected to consider trimming a number of institutional sales roles in its cost cutting effort.
This move is in the wake of the bank’s weak earnings report in June where the firm acknowledged that it had suffered as a result of weak trading volumes and lower fees from investment banking underwriting.
Job Cuts Widespread on Wall Street
Jefferies, however, is just the latest in a number of Wall Street banks that have announced massive staff cuts. After cutting employment by close to 75,000 people in 2011, Wall Street banks are expected to further reduce their workforces by 10% to 15% in 2012. The following are a few of the other banks that have announced layoffs in recent months.
- Deutsche Bank has announced that it plans to cut 1,900 people from its staff in order to reduce expenses by $3 billion.
- Goldman Sachs has an unknown number of lay-offs that are expected to take place this year, on top of the 10% reduction that has taken place over the past year and a half.
- Credit Suisse and UBS each announced job cuts of 3,500. Credit Suisse is attempting to cut close to $1 billion in expenses.
- Bank of America is in the middle of laying off a whopping 30,000 people – a move that was announced last year.
- Morgan Stanley is also in the middle of executing plans it announced last year that will cut 7% of its staff for a total of around 4,000 cuts.
- Citigroup is also trying to control expenses by slashing its workforce. Last December, the company announced it was trimming 5,000-workers. More recently it announced another plan to cut 350 more from its investment banking division.
Weak Trading Volume One Reason for Layoffs
One of the reasons that Wall Street banks have continued to reduce their payrolls in 2012 has been the extremely weak trading volume that has been experienced so far this year. Unfortunately, this trend shows no signs of abating.
According to Richard Repetto, an analyst at Sandler O’Neill & Partners, the NYSE’s average daily equity trading volume in August was 1.4 billion shares – the lowest level since at least 2004. In addition, Nasdaq OMX’s matched US equity trading volume fell 11.1% from July to 1.13 billion shares per day, the lowest monthly average in almost seven years. Average daily trading volume at the CME Group were 9.9 million contracts per day in August, the lowest this year, while trading volume fell 17.6% to 1.34 million on the IntercontinentalExchange compared with the same month a year ago.
Wall Street firms have not just been impacted by declining equity trading volumes. They have also been adversely impacted by the fact that a growing proportion of the trades that have taken place have been high frequency trades which generate even less commissions than already low commission ECN or ATS trades.
According to Tabb Group, high-frequency trading will make up 53.5% of all electronic equity trading volume in the US in 2012, a total that is slightly down from 55% in 2010. This is particularly important for research budgets, as high frequency traders require little to no research.
Other Reasons for Layoffs
Besides weak trading revenue, Wall Street firms have also suffered from falling IPO underwriting and M&A advisory fees. According to a recent study by analytics group Coalition, revenues for global investment banks generated from mergers and acquisitions, new stock and bond issuance dropped 25% in the first six months of 2012 from the same period a year ago.
In addition, the costs of running a cash equities business has continued to rise over the past five years as technology and compliance costs have risen substantially – particularly as regulatory requirements have been on the rise. Consequently, cash equities have become a loss-making business for many firms.