Layoffs at Wall Street investment banks and brokerage firms plunged in November 2014 after surging the previous month, according to a recent private jobs report. In addition to the drop in layoffs, new hiring surged in November to the highest level seen in the past few years as Wall Street firms started expanding their investment banking payrolls as the M&A boom continues.
November Challenger, Gray & Christmas Report
According to the Challenger, Gray & Christmas monthly Job Cuts Report released last week, the financial services industry saw a 61% drop in planned layoffs from 1,673 layoffs announced in October to 657 layoffs announced in November. The November layoff total was 59% below number of announced layoffs reported in November of 2013, and was the lowest level of layoffs seen in November since 2010.
On a year-to-date basis, Wall Street firms have announced 26,953 layoffs during the first eleven months of 2014, 54% less than the 59,189 layoffs announced during the same period in 2013. The decline in announced layoffs on a year-to-date basis is a signal that the Wall Street employment outlook is continuing to improve, although slowly.
The most surprisingly aspect of the November Challenger Gray & Christmas report was the extremely strong new hiring data for the month. According to CGC, financial services firms announced 4,620 new jobs to be filled during November – the highest monthly new hiring level seen in the past few years. On a year-to-date basis Wall Street firms have announced plans to hire 7,349 new positions, 67% higher than the 4,411 new positions announced during the first eleven months of 2013.
Some Banks Continue to Shed Workers
Last month, in a bid to reduce expenses, JP Morgan Chase announced plans to slash another 3,000 jobs in its consumer and community banking division by the end of the year. This is on top of earlier reports from the company to cut 7,000 jobs in its mortgage banking business and 4,000 positions in its consumer and community banking division.
This is part of the bank’s overall plans to reduce expenses in its consumer banking unit by $2 billion between 2014 and 2016. Some of this cost cutting is expected to come from increased technology usage.
Scotiabank, also in the midst of a round of cost reductions, announced that it plans to cut 1,500 jobs in the next few months – 2/3rds of these cuts are expected to come from its domestic Canadian operations.
In addition, Capital One Bank announced plans to lay off more than 100 people in Houston early in 2015 when it moves responsibility for managing and processing account activity for its local branches out of Texas.
M&A Boom Prompting Demand for Staff
However, some bright spots are evident on Wall Street. According to data from Thompson Reuters, the value of mergers and acquisitions during the first three quarters of 2014 totaled $2.66 trillion – marking a 60% increase on a year-on-year basis. This torrid pace of acquisitions continued in the 4th quarter as two of 2014’s biggest M&A deals – Activis’ $66 billion bid for Allergan and Halliburton’s $34.6 billion offer for rival Baker Hughes – took place in November.
The steady improvement in global M&A activity during 2014 is expected to result in increased M&A advisory fees for investment banks. Some analysts suggest that the increased volume of mergers activity seen so far this year should result in a 12% jump in investment banking fees for the industry as a whole in the third quarter as compared to the previous quarter.
As a result of this increase in M&A volumes and resulting rise in investment banking fees, some Wall Street firms have felt it necessary to increase their staffing in order to meet the demands of the increased workload in their investment banking divisions.
Impact on the Research Industry
While it is difficult to forecast whether the surge in M&A activity will continue into 2015, many experts believe that the surge in activity seen in 2014 is not a temporary phenomenon, but rather the beginning of an uptrend as CEO’s and corporate boards become more confident about the future.
If this does in fact take place, we would not be surprised to see investment banks invest more heavily in its equity research division in order to better compete for juicy banking mandates and provide appropriate aftermarket support for these deals once they are secured.
However, this does not mean that the cash equities business, which provides the economic foundation for the equity research business, looks to be improving very much in the coming year. In fact, weak equity commission volumes and increased regulatory pressures are likely to moderate hiring at sell-side and independent research businesses for the foreseeable future.