This is how many job cuts JPMorgan, UBS, Credit Suisse and RBS will probably need to make in the second half
Unless there's a miraculous recovery in revenues in the next few weeks, banks will almost certainly need to make more redundancies in the second half.
This sad reality comes after a rush of continued hiring in London over the past year. As Financial News points out today, Merrill Lynch International added 1,207 FSA-approved people between July 2010 and June 2011, RBC added around 94 people; Jefferies added around 62.
However, while headcount has increased, revenues haven't. Cost revenue ratios rose substantially at most banks in the first half.
Based on this increase, and assuming banks would like to achieve a cost/revenue ratio more like the first half of 2010, we've looked at how many jobs some of them would need to cut. The result is not pretty.
RBS Global Banking and Markets
Total cost ratio in Global Banking and Markets in the first half of 2011: 60%
Total cost ratio in Global Banking and Markets in the first half of 2010: 49%
Revenues in the first half: 3.9bn
Cost savings necessary to return to a 49% cost ratio: 423m.
Staff reductions necessary to achieve a 49% cost ratio (based on staff costs at 62% of the total and first half compensation of 77k per employee): 3,469
Staff reductions announced so far: None specifically, although John Hourican told the Financial Times he might make up to 2,000 people redundant in GBM. The bank has also indicated that it would be happy with a 55% cost income ratio - suggesting more like 1,600 people could lose their jobs (assuming the cost cutting isn't borne entirely by staff reductions).
UBS Investment Bank
Total cost ratio in the investment bank in the first half of 2011: 80%
Total cost ratio in the investment bank in the first half of 2010: 69%
Revenues in the first half: CHF6.2bn
Cost savings necessary to return to a 69% cost ratio: CHF675m.
Staff reductions necessary to achieve a 69% cost ratio (based on staff costs at 79% of the total and first half compensation of CHF191k per employee): 2,808
Staff reductions announced so far: None really, although 5,000 have been bandied about across the bank.
JPMorgan Investment Bank
Total cost ratio in the investment bank in the first half of 2011: 63%
Total cost ratio in the investment bank in the first half of 2010: 58%
Revenues in the first half: $24bn
Cost savings necessary to return to a 58% cost ratio: $1.2bn.
Staff reductions necessary to achieve a 58% cost ratio (based on staff costs at 48% of the total and first half compensation of $211k per employee): 2,707
Staff reductions announced so far: None, publicly.
Credit Suisse Investment Bank
Total cost ratio in the investment bank in the first half of 2011: 80%
Total cost ratio in the investment bank in the first half of 2010: 73%
Revenues in the first half: CHF7.8bn
Cost savings necessary to return to a 73% cost ratio: CHF542m.
Staff reductions necessary to achieve a 73% cost ratio (based on staff costs at 62% of the total and first half compensation of CHF181k per employee): 1,869.
Staff reductions announced so far: 2,000 across the bank, with 'a few hundred' falling in investment banking.
The good news is that based on cost ratios, some banks won't need to make many more cost cuts. BarCap's cost ratio in the first half of 2011 (65%) was below its cost ratio for the first half of 2010 (66%). Using the methodology above Goldman needs to make 544 redundancies to replicate 2010 margins, but has announced that it will be cutting 1,000 people already.
