This Time, A Downturn May Not Hurt So Much
No one's really talking about a downturn in the job market, though people seem more willing to entertain the notion of the markets' heading south.
If they do, analysts say investment banking jobs will be a lot more secure than they were in 2001 and 2002.
Although costs have risen, banks have resisted the urge to overextend themselves on staff spending, leaving them with less fat to trim should things get nasty.
"In recent years each bank has reduced its cost ratios substantially because revenues have been so strong," says Dick Bove, an analyst at Punk Ziegel & Co. "Cost ratios are now all extremely low."
In Europe, banks have been equally frugal. "Revenues are close to all-time highs, but compensation ratios have stayed reasonably low," says Vasco Moreno, head of European banks research at Keefe Bruyette & Woods. "Last time, banks were in much worse shape at this point of the cycle - they were using two or three-year guarantees, which can lead to significant pain in the P&L when revenues fall."
The Hard Data
Still not certain? Consider this: Compensation as a proportion of revenues fell to 48 percent at Goldman Sachs during the first quarter, down from 50 percent in the first quarter of 2006. Net revenues at Barclays Capital rose 42 percent last year, while costs rose 35 percent. Revenues at Calyon rose 32 percent while costs went up 18 percent. At Dresdner Kleinwort, revenues increased by 19 percent while costs increased 12 percent. At Credit Suisse, revenues rose 32 percent while costs crept up just 4 percent.
If any bank appears overstretched, it may be UBS, which saw its fourth-quarter investment banking expenses rise 32 percent compared to a 22 percent increase in operating income.
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