Big U.S. banks are bracing for another adjustment, as the surge in revenue created by two years of wonky markets and exuberant dealmaking comes to an end. This time the cuts are likely to be shallower, but still traumatic: johnsfoley
, adding staff in the process. Even so, while overall income has risen by 40% since the end of 2019, the 12 biggest firms now have the same number of what are known as “front office producers” as they had then, based on Coalition data from the end of March. Effectively, banks just squeezed more rain from the same rainmakers – around $4.2 million per person in 2021 compared with under $3 million before the pandemic.
The first line of defense against falling revenue at investment banks is to pay people less. Employees are already bracing for stingy bonuses. But if revenue levels are permanently reduced, banks will have little choice but to cut staff. One response is to let people leave and not replace them. That’s not ideal: Banks end up losing people they’d rather not, and testing the patience of those that remain.
That leaves room for disappointment, as tumbling revenue butts against workforces that are difficult to reduce in size. The bank most likely to wield the axe might be Goldman, which has returned to its “rank-and-yank” model of jettisoning weak performers. Yet even that exercise is only likely to shrink the workforce by little more than 1%, according to a person familiar with the situation. Cutting staff in a bad market is tough for Wall Street bosses; having nobody to cut is tough on investors.
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