Three banks which will probably make dramatic redundancies in 2011; three banks which won't
Depressingly, it looks like bankers in Europe could be disproportionately affected by redundancies in the years to come. This continent is unequivocally NOT where the action is.
Predictably, some banks have greater need of making redundancies than others. All banks always cut jobs: 5% annual trimming is inevitable. Some banks need to slash them.
Slashers
1) UBS
Ok, we've said this a lot, but UBS really does need to do something to cut costs. Following this year's happy clappy hiring fantasia, (and excluding one-off factors) costs in the investment banking were running at 98% in the third quarter. Long term, Carsten Kengeter wants to get then down to 70%.
Failing a monumental increase in revenues, it's not entirely clear how this will come to pass. UBS may therefore be obliged to a) eject people forcibly, b) pay them pitiful bonuses in the hope that they leave of their own accord.
2) Barclays Capital
BarCap's need to nullify some of its people is also known. The bank is currently analysing its businesses based on capital requirements and will be announcing hundreds of redundancies in the New Year.
As we noted last month, BarCap aims to keep its costs within a range of 60-65% of revenues. Overall costs for the first nine months of 2010 were 65% of revenues. 60% of BarCap's compensation costs are fixed, making redundancies an obvious solution.
Given increasing regulatory capital requirements for areas like correlation trading and securitisation, fixed income jobs have the highest probability of elimination.
3) Credit Suisse
Like UBS, Credit Suisse is also emerging from 2010 with abnormally high costs in its investment bank. Also like UBS, it is facing increasingly punitive capital requirements from the Swiss regulator. Also like UBS it needs to make redundancies
As we noted in October, Credit Suisse has hired 1,900 people this year, many of them in fixed income, but has very little to show for it. Over the first three quarters, the cost income ratio in the investment bank was 89%, up from 65% over the same period of 2009.
So far, Credit Suisse is known to have made 75 redundancies. Unless revenues pick up, we think more are inevitable.
Trimmers
1) RBS
RBS's propensity for redundancies is open to debate. On one hand, it's emitted 500 back office staff already and is rumoured to be making more in the New Year. On the other hand, it's lost a lot of people over the past few years and its cost income ratio is strangely low.
The compensation ratio for RBS Global Markets in the first nine months of 2010 was a mere 34%. The cost income ratio was just 53% for the same period.
2) BNP Paribas
Needless to say, BNP Paribas is French and therefore may not do any trimming at all, unless it trims in London.
However, the bank has little need to cut staff from its corporate and investment banking division anywhere. The cost income ratio in the CIB for the first nine months of 2010 was 52.5%. The bank has boasted about this being the lowest in the industry. In the circumstances, large scale redundancies would look a little wanton.
3) Goldman Sachs
Goldman Sachs routinely eliminates under-performers, but it appears to have little need of doing anything more untoward.
Compensation at the bank is creeping upwards, but remains manageable as a percentage of revenues. It was 47% for the first nine months of 2009, versus 43% for the first nine months of 2010.
Notably, however, Goldman has done some dramatic hiring. By the third quarter its headcount was up 2,900 on the fourth quarter of 2009. Many of these hires, however, are likely to be in 'growth markets'.
