This is what happens when organisations persist in hiring, increase pay, and have absolutely nothing to show for it

The Financial Times has an interesting article today about private banks.

Based on a study by McKinsey, it includes this graphic, showing a nasty increase in European private banks' cost income ratio (up from 63% to 75% in the past five years) to the highest level in a decade.

Source: Mckinsey/FT

Addicted to hiring

The problem, according to Scorpio Partnership, a private banking research firm, which recently produced a similarly bleak study on private banking, is that private banks have become "addicted to hiring."

"The focus is on growing by cannibalising staff from competitors," says Stephen Wall, a director at Scorpio Partnership. "Private banks are spending far too much money on hiring people who are not delivering any bang for their buck."

Numerous organisations are in the midst of declared private banking build-outs.

Barclays Wealth wants to hire 650 new relationship bankers. Credit Suisse wants to hire

200 new relationship managers every year. JPMorgan aspires to increase its EMEA relationship manager headcount 15%. Various other organisations (RBC, Quilter), have been guzzling staff too.

However, all these new people haven't translated to higher revenues. "They haven't been able to sell any high margin products," ponders one headhunter. "Most of the current business is in low margin areas like cash instead of high margin areas like hedge funds, private equity, and structured products."

Addicted to paying

Unfortunately, the increase in private banking hiring has been accompanied by an increase in private banking pay.

"Senior private bankers' salaries have increased 50%," says the private banking headhunter.

Predictably, all of this can only have one outcome. McKinsey's private banking partner is predicting redundancies, even among relationship managers.

"This is a symptom of an industry where people have had a very good time for a very long period," he told the FT.