Why it makes sense to junk juniors

8 July 2008

2 minute read

Why would anyone with an inclination for cost cutting dump a lowly analyst? Analyst pay is relatively insignificant, so in times of cost constraint they should be impervious to layoffs.

Sadly, this doesn't appear to be the case. While first-year analysts are usually immune to the chop for political reasons (banks don't want university students to hear that their immediate predecessors have suffered a nasty fate), second and third years are getting canned just like everyone else. Fixed costs associated with each unit of headcount are to blame.

"There's a massive central overhead," says an ex-derivatives trader. "This means that at a junior level banks have an incentive to get rid of people, not because of salary savings, but because of savings in the cost of office space, security, etc."

Andrew Pullman, MD of People Risk Solutions and a former head of capital markets HR at a European bank, says desk space alone can cost around 6k per head; a Reuters terminal can cost around 5k; and HR amounts to another 5k per person.

Once things like compliance, IT and other operational costs are factored in, the head of HR at one US bank in the City puts the total 'seat cost' at anywhere from 50k-75k. Additionally, employers' national insurance contributions and benefits packages swell direct compensation costs by around 25%.

Before bonuses are even thrown into the equation, banks are therefore able to shave as much as 130k from the bottom line every time they get rid of a second-year analyst. Dumping junior bankers suddenly makes a lot of sense after all.

AUTHORSarah Butcher

Global Editor

bo
bondgirl
10 July 2008
the reason why pay is so good is because there is NO job security.
if you're not street smart you wont survive the tough times.
just get on with it!!
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Re
Redeploymentisafigmentofyourim
10 July 2008
Henry - good at job, impress people that matter, and play cards right, that's the secret is it? One will be saved or redeployed? Wow, it's all so simple - thanks for your enlightened wisdom and telling people that if they try hard enough, they can reverse this credit crunch. Should I even bother asking how you impress people when you're a first year analyst working on a sponsors team or in CDO syndicate? Do you flash them your big unit? Will that do the trick? Tell funny jokes? I also like how it's so black and white in your little fantasy world (those who follow Henry's 3 steps will survive, those who don't get what they deserved). I suppose analysts in structured finance should have played their cards right and simply started on a different desk after graduation. With your wisdom, knowledge and savvy, you should be able to beat Paulson's subprime trade, but for some reason I think you're all talk.
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fx
fxo man
10 July 2008
Have to say that i disagree with some of what Henry writes, but here he's spot on. Unless you're very senior and fall foul of big-time politics, GOOD PEOPLE DON'T GET FIRED. EVER. PERIOD. (unless they're guilty of serious misconduct etc, and even then, in my experience, unless the organisation has absolutely no option, for instance for reputational reasons, they're still kept on).
This makes sense: in an environment as competitive as the City, in the main, the (job) market is efficient. The cream invariably rises to the top. Good people, i.e. deemed to be good by senior management (therefore managers/decision makers who by definition have been there & done it), are far too valuable to let go for trivial reasons (like "cost-cutting", which is simply an excuse for culling people who the banks want to fire, but in normal market conditions can't!).
Replacing top talent is an expensive exercise. Like in the markets, the big players don't want to pay offers. No. They pick people up on the bid. And then hold the position and let it run and run...............
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He
Henry
9 July 2008
So you guys have so far named UBS, Lehman, BarCap, BofA and RBS. No 2 votes for either as I write this. No one bank is guilty of this, its common procedure. Nonetheless, if you are a grad and you get canned, no matter what you say, you deserved it. If you were good at your job, impressed the people that matter and play your cards right, you won't be canned, period. No matter what headcount chops are needed you'll be saved (maybe redeployed) if you're worth it.
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ch
cheated&robbed
9 July 2008
Name: BofA.
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