At least one firm is already taking action to trim costs. A memo was sent to staff in Credit Suisse’s investment banking and capital markets division in the first days of September about a consultation period on potential job cuts, according to people who have read it. The number of bankers likely to be affected is undecided and two people at Credit Suisse familiar with the plans talked of “pruning” rather than large-scale lay-offs.
One person said the consultation would be “very different” to the round of cuts seen in the bank’s global markets unit earlier in 2016 – part of a plan to eliminate 6,000 jobs – and that job losses were likely to be minimal.
Revenues remain under pressure across most of the industry. European investment banking revenues in 2016, from debt and equity capital markets, loans and M&A advisory work, stood at $ 10.5 billion as of September 9, according to Dealogic. That is the lowest level for that period since 2003, when it was $ 10.2 billion.
The value of European ECM deals and loans are at their lowest since 2012, while M&A is at its lowest since 2013. Bond issuance is the sole bright spot.
European banks are also facing ever-keener competition from Wall Street rivals. The five busiest bookrunners on European ECM deals by value so far in 2016 are all US firms, which also outnumber European rivals in the top five spots for European M&A advisory work.
Octavio Marenzi, chief executive of research firm Opimas, said he expects an average headcount reduction of 10% across the industry in Europe over the rest of 2016, adding that the “hardest hit” include Deutsche Bank and UBS. The banks declined to comment.
One global desk head said his bank makes headcount reductions in autumn and spring every year and sees no reason why anything would be different this time round.
Philippe Morel, global leader of Boston Consulting Group’s capital markets practice, said he expected global capital markets revenue in 2016 to fall 5% to 7%, adding: “If nothing is done on the cost side, average cost/income ratio in the industry globally would reach 80% before fines – its highest level ever. This is not sustainable.”
At McKinsey, director Matthieu Lemerle said: “In addition to the usual adjustments banks will make in reaction to the levels of activity, Brexit has been a bit of a catalyst to accelerate and accentuate painful restructuring decisions.”
The industry suffered a weak start to 2016 and most European banks have had hiring go-slows – in some cases, a go-slow that was was almost a freeze – for many months.
At research firm Coalition, head of research George Kuznetsov said he expected European banks in particular to focus on “selective hires” of senior investment bankers who could “generate revenue relatively fast” as they attempt to claw back market share lost to Wall Street firms. That, he added, would mean any job cuts planned to control costs would hit junior bankers the hardest.
Bankers and traders will hope the axe misses them, and recruiters note that the market has certainly seen worse. Richard Hoar, a headhunter at recruitment firm Goodman Masson, said that although “there’s probably more bad news than good” in terms of headcount levels, “it doesn’t feel like Armageddon”.