If you thought your banking job was safe because you survived the fourth quarter and got paid some sort of bonus, you were wrong. Cost cutting in banking is alive and well and banks have been casting about for costs to take out ahead of first quarter results announcements later this month.
As we reported earlier today, senior equities staff keep coming out of Credit Suisse - the latest exit being Tim Scanlon who's off to SocGen. Last week Deutsche Bank cut its insurance investment banking team headed by Mark Woolley, an MD who joined from Dresdner Kleinwort in 2004. And three senior debt capital markets bankers left Bank of America Merrill Lynch, including Martin Mills, head of the EMEA product solutions business, and Laurent Guyot, an MD responsible for FIG clients in the Benelux region who joined from UBS in 2014.
The cuts follow a miserable start to the year for M&A bankers in Europe. Figures from Dealogic show M&A revenues declining 27% year-on-year in the first quarter, with withdrawn M&A deals in the quarter exceeding the value of deals for the whole of last year. The biggest cuts came in the consumer and retail sectors, followed by the communications, media and entertainment industries. By comparison, FIG dealmaking rose in Europe in Q1 (but Guyot has gone anyway).
By comparison, Dealogic says equity capital markets (ECM) activity boomed in Europe in the first quarter, and was up 94% on the previous year, although DCM revenues fell 4%.
The first quarter was stronger in the Americas, where Thomson Reuters puts M&A fees up 20% on last year. It may also have been stronger in fixed income trading, where Morgan Stanley president Colm Kelleher recently said 2017 had started well. When Jefferies reported its first quarter results last month, ahead of other U.S. banks, its fixed income and equities trading revenues were up 290% and 775% respectively on the previous year. However, this was down to Jefferies' dismal first quarter in 2016 rather than to miraculous market conditions. Compared to 2015 Jefferies first quarter revenues in 2017 were up a more modest, but still impressive 28% in equities and 76% in fixed income. To the extent that Jefferies is a bellwether for the industry, salespeople and traders should have nothing to fear.
Except, of course, banks have something of a cost overhang. J.P. Morgan may say that it's finished cutting costs in its investment bank, as may Goldman Sachs, but as people at Deutsche Bank will tell you, you can't always trust senior management when they say the job cuts are over. As the chart below shows, the European houses are all starting this year with cost issues. Credit Suisse and Deutsche have disclosed plans to do something about it: Credit Suisse intends to take another $500m of costs out of its markets business (although not necessarily this year) and Deutsche wants to cut another €3.1bn from costs across the bank (also not all this year).
Headhunters say the recent trickle of exits is just the start in what might prove a busy year for banks' executioners. "We're expecting Bank of America, Morgan Stanley, and J.P. Morgan to make a round of cuts in IBD soon," says one. "You might see another 50-60 senior people coming out across the London market before the end of April."