Investment bankers in Europe are girding for a second wave of job cuts in less than a year after the euro area’s debt crisis drove fees from mergers and securities underwriting to a nine-year low.
Credit Suisse Group AG and UBS AG, Switzerland’s biggest lenders, face the most pressure to boost efficiency as that country runs ahead of others in introducing tougher capital and liquidity rules to curtail risk-taking, making some businesses unviable.
The banks’ securities units had the highest costs as a proportion of revenue among a group of the 12 largest firms in Europe and the U.S. last year, Morgan Stanley analysts Hubert Lam and Huw van Steenis wrote May 24.
While the situation may be most acute at Credit Suisse and UBS, similar dynamics are at work at other firms as the debt crisis drags on, capital requirements ratchet higher and economic growth grinds to a halt.
“Bankers are really gloomy and a lot of people are worried about their jobs,” said Edward Cumming-Bruce, a partner at London-based advisory firm Gleacher Shacklock LLP who has more than 20 years’ experience. “Banks are under remorseless pressure to cut costs and balance sheets as we witness a significant change in the way the financial industry works.”
The debt debacle is roiling markets and discouraging clients from doing deals. Investment-banking fees in Europe, the Middle East and Africa from mergers, stock and bond sales and loans sank by more than a third in the first half from a year earlier to $9 billion, the lowest since 2003, according to estimates from New York-based research firm Freeman & Co.
Revenue per employee at the investment banks of Credit Suisse and UBS last year amounted to $622,654 and $612,707, respectively, down about 50 percent from 2006, according to data compiled by Bloomberg. At Deutsche Bank AG, revenue per employee at the corporate banking and securities division fell by 14 percent since 2006, and at Barclays Plc’s investment bank by 9.3 percent. UBS is the only one of the four firms to have fewer workers at its investment bank at the end of 2011 than five years earlier.
The two Swiss companies had combined investment-banking staffs of 38,156 at the end of 2011. They probably will have the highest cost-to-income ratios of the 12 biggest banks again this year, according to estimates by the Morgan Stanley analysts. Unless the firms boost revenue this year or next, the pressure to cut more jobs and shrink their securities units will intensify, the analysts said.