Wall Street layoffs spiked in July as many investment banks have made cost cutting a priority due to poor market conditions including weak trading volumes, low volatility, and poor results from their fixed-income trading units. Unfortunately, poor market conditions in July and recent regulatory uncertainty don’t seem to help the near-term employment outlook at Wall Street firms.
July Challenger, Gray & Christmas Report
According to Challenger, Gray & Christmas’ monthly Job Cuts Report released a few weeks ago week, the financial services industry announced a 76% surge in planned layoffs during July of 1,580 jobs from 897 layoffs announced in the previous month. Despite the spike in planned layoffs in July of this year, this level was 24% lower than the number of layoffs announced in July of 2013.
Clearly, one sign that the employment picture is starting to improve is that on a year-to-date basis, Wall Street firms have announced 41% fewer layoffs in 2014, or 23,058 layoffs, compared to 38,846 job reductions announced during the same period in 2013.
Planned hiring at financial services firms also rose by 1,200 new positions in July following no new hires announced in the prior month. Despite the July rise in new jobs announced, year-to-date hiring plans at Wall Street firms remain sluggish as 15% fewer new jobs have been announced so far in 2014 when compared to the same period in 2013.
Market Activity Sluggish in July
However, the employment outlook on Wall Street is unlikely to improve markedly in the near-term as market conditions look quite weak. For example, a few weeks ago, Barclays CFO, Trushar Morzaria, explained that July was possibly the worst month of the year for Barclays’ investment bank.
More recently, Deutsche Bank’s banking analysts are also voicing concerns about recent market activity. In a note released recently, Deutsche Bank analysts point out that revenue in July 2014 seems to have been weaker than is normally the case. Fixed income currencies and commodities (FICC) revenues seem to have suffered particularly. Primary issuance of asset backed and mortgage backed securities were down 19% and 42% year-on-year respectively. High yield and investment grade issuance were both down 14%. FX and interest rate derivatives declined again.
Even Deutsche’s equities businesses didn’t do as well as hoped. Deutsche points out that although IPOs were up 115% in July 2014 versus July 2013, the comparables are favorable as July 2013 was a weak month. More worryingly, Deutsche points out that the equities capital markets pipeline has declined 26% over the past two months, which it says could prove troublesome.
Impact for the Research Industry
So, what does this mean for hiring in the research industry? We suspect that the recent sluggishness seen in most divisions (excluding investment banking) at many Wall Street firms does not bode well for sell-side research departments.
However, the biggest concern Wall Street management is likely to be facing at the moment is the uncertainty around whether UK and European regulators are likely to ban asset managers’ use of client commissions to pay for sell-side and independent research. It is highly unlikely that many Wall Street firms will be hiring aggressively until they see what regulators decide regarding this issue.