Staffs Still Look Bloated Versus Revenues

It's becoming harder to find a bank that hasn't already laid off at least 10 percent of its staff. But with revenues still catastrophically low, more headcount reductions appear baked in the cake.

Based on average pay per head for the year so far, we've calculated how many more people each bank would need to cut in order to maintain its compensation ratio (compensation costs as a percentage of revenues) in line with 2007. The results range from the farcical (Merrill Lynch) to the disturbing (Credit Suisse), and the reassuring (Goldman and Morgan Stanley).

The following figures should not be viewed as predictors of the extent of future layoffs. For one thing, reported revenue at most banks is deeply depressed by asset write-downs that get subtracted from the top line. Although those write-downs signify very real losses and capital deterioration, what they do not signify - at least, not in any simple linear way - is absence of demand for a bank's services. So we aren't suggesting that the 96 percent year-to-date revenue decline at Merrill Lynch, for instance, creates an economic case for shrinking Merrill's company-wide compensation expense or headcount by anywhere near 96 percent.

Still, our numbers may provide useful context for gauging the degree of pressure for additional workforce reductions at various bulge-bracket institutions now that they've just finalized their 2009 budgets.

Merrill Lynch

Revenues Q1-Q3: 2008 - $834m; 2007 - $19,442m

Compensation costs Q1-Q3: 2008 - $11,170m; 2007 - $11,564m

Compensation ratio Q1-Q3: 2008 - 1,339%; 2007 - 59%

Headcount Q1-Q3: 2008 - 60,900; 2007 - 64,200

Average comp per head: 2008 - $183k

Layoffs over the past year: 3,300

Layoffs required to maintain compensation ratio: 58,195

Credit Suisse (investment bank only)

Revenues Q1-Q3: 2008 - CHF2,736m; 2007 - CHF16,217m

Compensation costs Q1-Q3: 2008 - CHF5,682m; 2007 - CHF8,111m

Compensation ratio Q1-Q3: 2008 - 207%; 2007 - 50%

Headcount Q1-Q3: 2008 - 21,300; 2007 - 20,399

Average comp per head: CHF266k (US$228k)

Layoffs over the past year: None; 1,000 staff added*

Layoffs required to maintain compensation ratio: 16,161

Deutsche Bank

Revenues Q1-Q3: 2008 - €6,102m; 2007 - €14,620m

Compensation costs Q1-Q3: 2008 - €3,250m; 2007 - €5,217m

Compensation ratio Q1-Q3: 2008 - 53%, 2007 - 36%

Headcount Q1-Q3: 2008 - 15,574; 2007 - 17,215

Average comp per head: 2008 - €209k

Layoffs over the past year: 1,668

Layoffs required to maintain compensation ratio: 5,130

UBS

Revenues Q1-Q3: 2008 - minus CHF21,418m; 2007 - CHF11,065m

Compensation costs Q1-Q3: 2008 - CHF4,589m; 2007 - CHF8,326m

Compensation ratio Q1-Q3: 2008 - unquantifiable; 2007 - 75.2%

Headcount Q1-Q3: 2008 - 18,901; 2007 - 22,666

Average comp per head: 2008 - CHF243k (US$208k)

Layoffs over the past year: 3,765**

Layoffs required to maintain compensation ratio: Everyone

JPMorgan (investment bank only)

Revenues Q1-Q3: 2008 - $12,516m; 2007 - $14,998m

Compensation costs Q1-Q3: 2008 - $6,535m; 2007 - $6,404m

Compensation ratio Q1-Q3: 2008 - 52%; 2007 - 43%

Headcount Q1-Q3: 2008 - 30,989; 2007 - 25,961

Average comp per head: 2008 - $211k

Layoffs over the past year: None; 5,298 staff added

Layoffs required to maintain compensation ratio: 5,647

Morgan Stanley

Revenues Q1-Q3: 2008 - $22,881m; 2007 - $28,476m

Compensation costs Q1-Q3: 2008 - $10,726m; 2007 - $13,365m

Compensation ratio Q1-Q3: 2008 - 46.9%; 2007 - 46.9%

Headcount Q1-Q3: 2008 - 46,383; 2007 - 47,713

Average comp per head: $231k

Layoffs over the past year: 1,330

Layoffs required to maintain compensation ratio: No additional layoffs required

Goldman Sachs

Revenues Q1-Q3: 2008 - $23,800m; 2007 - $35,246m

Compensation costs Q1-Q3: 2008 - $11,424m; 2007 - $16,918m

Compensation ratio Q1-Q3: 2008 - 48%; 2007 - 48%

Headcount Q1-Q3: 2008 - 32,569; 2007 - 29,905

Average comp per head: 2008 - $351k

Layoffs over the past year: None; 2,664 staff added***

Layoffs required to maintain compensation ratio: No additional layoffs required

· *Between Q1 and Q308 vs. Q1 and Q307, excluding 500 layoffs announced in October

· ** Between Q1 and Q308 vs. Q1 and Q307; excluding 1,901 layoffs announced in October

· ***Between Q1 and Q308 vs. Q1 and Q307, excluding 3,200 layoffs announced in October