US securities firms still heavily overstaffed

The SIA provisional monthly employment figures show that the US securities industry employs 730,000 staff. While this is sharply down from its annual peak of 783,000 at the end of 2000, it is still 14,000 ahead of levels in 1999, and 66,000 ahead of the 664,000 in the industry in 1998. That was the last year when activity and revenues were comparable to current levels in the business.

Investment banks cut their headcount sharply last year to deal with the downturn in capital markets activity, but volumes this year are even lower than in 2001 and firms will have to lay off more staff.

Guy Moszkowski, a securities industry analyst at Salomon Smith Barney, warned in a report last week that headcount would have to fall again this year. Volumes of completed M&A in the US and Europe in the first half of 2001 were the lowest since 1995.

He said: "It is likely that M&A staffing levels are designed for business levels of the 1996-2001 period, but there has not been a big enough recovery of business and market confidence to lift the level of M&A."

He warned that even an optimistic recovery "would still fall short, we believe, of what would be needed to justify staffing at some firms".

Signs of a serious cull have already appeared. In the first half of its fiscal year, the headcount at Goldman Sachs fell by 1,532. The headcount at Merrill Lynch dropped by more than 2,800 in the first half.

One source at the SIA said: "Firms face a tough dilemma. They must try to keep costs down without laying off staff they will need to hire back in the event of a recovery. They are still making decent returns. But it seems likely that some are still overstaffed."