Wall Street Layoffs Slow in June, But Second Half Picture Not Rosy

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Layoffs at many Wall Street firms slowed in June as often happens during the summer.  However, the employment outlook for the financial services industry doesn’t look so bright as we look to the second half the year as many banks continue to struggle with declining profits brought on by low volatility, weak volumes, and underperformance in their fixed income trading units.

June Challenger, Gray & Christmas Report

According to Challenger, Gray & Christmas’ monthly Job Cuts Report released last week, the financial services industry announced a 22% decline in planned layoffs during June of 897 jobs from 1,151 in the previous month.  The drop in the number of planned job cuts last month was also 46% lower than the number of layoffs announced in June of 2013.

Supporting the improvement seen in June, Wall Street firms have announced 42% fewer layoffs on a year-to-date basis — 21,478 layoffs so far this year – compared to 36,762 job reductions announced during the same period in 2013.

However, planned hiring at financial services firms has remained tepid as no new hiring was announced in June following no new hires announced in May.  This weakness is borne out by the fact that year-to-date hiring plans at Wall Street firms remains sluggish as 54% fewer new jobs have been announced so far in 2014 when compared to the same period in 2013.

Major Industry Moves

While the employment picture looks improved in June, we are not so sure that the rest of the year will continue in this manner as weak Wall Street 1st Qtr earnings announcements could prompt a new round of layoffs in the second half of the year at a number of investment banks.

One firm that is said to be mulling over a new round of layoffs is Goldman Sachs.  Goldman is said to be weighing a formal announcement about the size and scope of potential cuts in their ranks of fixed income traders unless conditions improve.  Some experts say these cuts could exceed the 10% in staff reductions that often takes place at large investment banks.

Last month, JP Morgan CFO Marianne Lake said that the firm might be forced to implement staff cuts and/or compensation reductions in its investment banking division due to a slowdown in trading conditions.  Ms. Lake did not give any time frame for such a move.

As we have mentioned in the past few months, Barclays has been planning a major right sizing effort in its investment bank.  Barclays started its planned staff reductions by eliminating 100 jobs across its investment banking and markets business in early June – a cut which represents approximately 5% of the firm’s Asian-based investment banking workforce.

Impact for the Research Industry

It appears that the real weakness at Wall Street firms has been in their fixed-income trading units and not in their cash equities or M&A businesses.  All of this should enable most firms to retain their existing research staffs – at least for the time being.

However, Wall Street management is likely to be a little nervous about their trading divisions as the first quarter typically represents the strongest period for trading.  Consequently, we suspect that many on Wall Street will be watching their trading activity closely to see if a rebound takes place as the year progresses.

If sell-side firms continue to experience weakness in their trading businesses into the second half of the year, we would not be surprised to see Wall Street firms scale back staff in other areas of their banks, including their research divisions.

 

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