Layoffs at Wall Street firms shrunk in August as the summer doldrums put a temporary halt to cost cutting efforts seen recently at many banks. Unfortunately, weak cash equity volumes also kept a lid on hiring in August as most Wall Street firms don’t see a compelling reason to add to their payrolls anytime soon.
August Challenger, Gray & Christmas Report
According to Challenger, Gray & Christmas’ monthly Job Cuts Report released last week, the financial services industry announced a 38% drop in planned layoffs during August of 974 jobs from 1,580 layoffs announced in the previous month. The decline in planned layoffs in August was also 68% lower than the number of layoffs announced in August of 2013.
Another sign that the Wall Street employment picture is starting to improve is that on a year-to-date basis, Wall Street firms have announced 43% fewer layoffs in 2014, or 24,032 layoffs, compared to 41,942 job reductions announced during the same period in 2013.
However, the employment picture on Wall Street isn’t particularly robust. The number of new positions expected to be hired at financial services firms also fell 58% to 500 new positions in August from 1,200 new hires announced in the prior month. This drop in planned hiring is consistent with year-to-date hiring plans at Wall Street firms which are 25% lower so far in 2014 when compared to the same period in 2013.
Market Conditions Remain Weak
As we reported last week, revenue at the top ten investment banks slipped 5% in the first half of 2014 due to weakness in their currency, fixed income and equities businesses. In fact, revenue from these large investment banks’ equity-trading businesses declined 4% year over year to $21.6 billion, driven mainly by decline in derivatives.
As a result of the weakness seen in revenues so far this year, a number of investment banks, including Barclays, Deutsche Bank and UBS have all focused on cost cutting as a way to address shrinking margins. This has particularly taken the form of lay-offs and pay cuts. According to UK consulting firm, Coalition, the ten largest investment banks have reduced front office jobs by 4%, job cuts in the battered FICC division have totaled 9%.
Demand For Young Workers Picks Up
Despite weak financial market conditions, one bright spot has emerged in the Wall Street jobs picture – and that is increased demand for younger workers.
For example, Bank of America has reportedly hired close to 40% more full-time analysts and associates this year than last. J.P. Morgan Chase is aiming to hire 10% more junior bankers than last year. Goldman Sachs’ 2014 class of interns is almost 9% higher this summer than last summer, while Barclays’ hired 20% more interns this year than in 2013.
There are a few reasons for this pick-up in hiring junior staff. First, regular churn on Wall Street has depleted the ranks of junior analysts and associates as some have left to get higher degrees, others have left to join hedge funds or private equity firms, while others have left the business entirely. Industry experts say that 30% to 40% of analysts at bulge bracket investment banks typically leave the street after a two year stint to move to the buy-side.
The second reason for the increased interest in hiring more junior staff is due to the strength seen in mergers and acquisition activity so far this year. As is historically the case, Wall Street often over-hires when business picks up, only to over-fire when business slumps.
Impact for the Research Industry
So, what do these developments mean for the research industry? We suspect that the continued weakness seen in most divisions, including cash equities, would lead one to conclude that most sell-side research departments will keep a lid on hiring.
We feel this even more strongly given the current uncertainty around what UK and European regulators will do regarding the topic of whether institutional investors will be allowed to continue using client commissions to pay for sell-side and independent research. In our view, it is highly unlikely that many Wall Street firms will be hiring aggressively in their research divisions until they see what regulators decide regarding this issue.