As seen in the September 01, 2011 issue of ...

The banks may be posting decent (if mildly disappointing) profits, but they're aggressively slashing job rolls to rein in costs.

By Justin Grant, Phil Albinus

Wall Street has endured a brutal summer, and it wasn't just the heat, angry thunderstorms and Hurricane Irene. Despite some decent quarterly reports here and some anemic profit statements there, nearly all of the big banks are slashing their ranks and sending employees back into a choppy job market.

With the dog days of August now in the rearview mirror, the finance industry will undoubtedly be happy to see the summer of 2011 draw to a close. Let's look at some recent numbers from across the Pond. HSBC announced "decent" profits (up 36 percent, to $9.2 billion in the first six months of the year) but on the same day promised to slash 30,000 jobs. Lloyds Banking Group announced that it plans to dwindle its ranks by 15,000, while Credit Suisse is taking a more moderate approach, aiming for a staff reduction of 2,000.

And last week UBS announced it will axe 3,500 jobs in a bid to slash costs by $2 billion. Meanwhile Barclays is also reportedly gearing up for a round of jobs cuts.

Things are no rosier here in the states. Goldman Sachs has been quietly laying off employees all summer thanks in part to a fixed-income trading slump that also has plagued its European counterparts. And in July Morgan Stanley disputed media reports that it was considering layoffs of its own, although those denials are unlikely to cheer up anyone other than its own underperforming advisers.

The common refrain we've been hearing throughout this summer of discontent is that firms are taking drastic steps to rein in costs as they slog through a depressed trading environment. And, of course, these unsettling headlines came at a less than ideal time, as the U.S. Congress fought over raising a debt ceiling to avoid a downgrade in the country's credit rating. Add the near constant reports of the European debt crisis -- Greece, Ireland and so on -- and investors remain continually spooked.

Even the headhunters are warily noticing the new landscape. "I have been doing this forever, and there is a lot of movement on Wall Street, especially in the leadership space," says Judy Homer, a headhunter at JB Homer Associates who has placed senior technologists and operations executives on the Street for 25 years. "That is what I am seeing -- it's in the rank and file. 2008 was outrageous, and this is the fallout [from that crisis]."

Now What?

So where will buy-side traders go after being laid off? Homer says they might have to leave the industry for a sales position, or maybe even consider professional gambling, because not everyone can start their own hedge funds. "When you start talking about the buy-side, it's a different kind of trading than the sell-side," she says. "A lot of them will go into other professions. One reason [for the layoffs] is that trading has become less hands-on and more automated, and it requires more brain power, especially for dealing with quants and algo trading."

Just because you're a trader on the buy-side at UBS doesn't mean that Bridgewater will hire you, Homer adds. "Why are you no longer a trader? They'll ask," she insists. "If you survived these last few years and you made right decisions, they won't let you go. It's now, 'What have you done for me lately -- like today and this hour?'"

In her years as a headhunter, Homer continues, she has never seen anything like this -- even back in the days when the first dot-com bubble burst in 1999-2000 and in the weeks after the Twin Towers fell. "Even after the tech crash and 9/11, things were fine," she recalls. "So many more deals are happening now, and a lot of traders are still being laid off. Deal making is back big, but it's a tough time for traders."