As revenues falter, 2020 threatens to be another year in which struggling banks ditch entire divisions to save money. At the same time, however, a new breed of cost-efficient operator is emerging, capable of competing in every business area in every region. While no banking job can be called safe today, these big banks offer the closest thing to stable employment.
PwC coins the term "super banks" in a report this month that predicts the investment banking industry will bifurcate into super banks that service multinational clients globally, plus numerous client-centric "smaller banks" operating in specific markets and regions. PwC isn't the first to predict this - McKinsey & Co has been calling the emergence of an elite of 'five to seven' global banks for years and has now resorted to urging much bolder cost cutting across the entire banking industry.
Which are the super banks? A new report from market intelligence provider Tricumen doesn't endorse the term, but it does identify just four banks that seem efficiently staffed in every investment banking business area: Bank of America, Goldman Sachs, JPMorgan and Morgan Stanley. Other banks have one or more businesses whose staff generate lower revenues per head than the rest.
Tricumen's analysis is conducted on a global basis across investment banking divisions (IBD) (M&A, ECM, DCM), plus fixed income currencies and commodities trading (FICC) and equities trading. In each area, Tricumen looks at costs and revenues generated per member of front office staff, plus costs as a proportion of revenues. The charts at the bottom of this page, which cover the first nine months of 2019, shows where each bank ranks by business: the closer to the middle of the chart, the less efficient a business is compared to rivals.
Tricumen's analysis suggests European banks are typically significantly less efficient than their U.S. rivals and that they therefore have more cost cutting to come. BNP Paribas' and SocGen's front office staff in IBD and FICC generate far lower revenues than the rest. Bankers at Deutsche, HSBC and UBS generate mediocre revenues per head, as do fixed income traders at Natwest Markets.
Some American banks also have areas of comparative under-performance. The equities trading businesses of Citi, RBC and Wells Fargo, for example, look over-staffed according to Tricumen.
Tricumen's analysis isn't infallible and it might be argued that revenues per head don't paint a full picture. Despite seeming to be overstaffed in equities, banks like Citi and RBC achieved lower than average operating costs as a percentage of revenues in their equities businesses in the first nine months of the year (possibly because they pay less). However, both Citi and RBC have also been dispensing with equities professionals since the summer - so there might be something in the thesis that low revenues per head are a leading indicator of cost-cutting.
As the squeeze continues, you don't want to get caught working for a bank that's jettisoning limbs to become a 'smaller bank' in 2020. The charts below indicate which limbs might be jettisoned and highlights the four 'super banks' that can play efficiently in every product market. Ultimately, you want to be situated on a red dot that's outside the broken line. If not, watch out.
Operating revenues per unit of full time front office headcount, IBD, first nine months 2019:
Operating revenues per unit of full time front office headcount, FICC, first nine months 2019:
Operating revenues per unit of full time front office headcount, equities, first nine months 2019:
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