Crisis jolts Wall Street bankers already resigned to tough job market (updated)

Steel City Securities

05/04/2023 18:18

(Adds Swiss move on Credit Suisse bankers' bonuses)
    By Tatiana Bautzer
       NEW YORK, April 5 (Reuters) - Wall Street bankers face
an increasingly gloomy job market after last month's banking
crisis worsened an already bleak outlook for pay and staffing.
    The failure of two U.S. banks - Silicon Valley Bank and
Signature Bank - shook confidence in the industry and prompted
government intervention to protect the financial system. That
turbulence may prompt banks to pare back their lending and slow
economic activity, according to industry experts.
    The increased risks come after a lackluster 2022, when
rising interest rates, inflation and the fallout from the war in
Ukraine prompted consumers and companies to pull back on
spending, bringing down the volume of initial public offerings,
share and debt sales as well as mergers and acquisitions. 
    Bankers' bonuses, which are partly determined by revenue
from the deals they strike, fell accordingly. 
    Executives had started to forecast a revival in capital
markets in the second half of this year when the failures of the
lenders roiled bank stocks and prompted Swiss regulators to
orchestrate a takeover of ailing lender Credit Suisse Group AG
 CSGN.S .
        In an unusual move, Switzerland 
    instructed Credit Suisse
     to cancel or reduce all outstanding bonus payments for the
top three levels of management and examine whether those paid
out can be recovered, its Federal Council disclosed on
Wednesday. 
  
        There has been a public backlash against bonus payouts
at the bank, whose rescue by Swiss peer UBS was backed by about
260 billion Swiss francs ($280 billion) of state funding and
guarantees.
  
        One likely consequence of the past few weeks of turmoil
is that banks tighten their lending standards, which could
further hinder dealmaking - making the prospects for jobs and
compensation on Wall Street more gloomy.
    "It's not a dire scenario, but banks are paring back the
excesses from the last years and feel they are moderately
overstaffed," said compensation consultant Alan Johnson, who
owns a consultancy that specializes in Wall Street pay.
    Bankers are also more cautious about future U.S. economic
growth as the housing market slows due to higher interest rates
curbing demand for mortgages. U.S. consumers are starting to
fall behind on credit cards and auto loans in greater numbers,
even though delinquencies are still low by historic standards.
    An economic slowdown also translates to fewer deals, and
raises the prospect of banks cutting jobs in addition to
offering smaller bonuses.
    The banking crisis will further squeeze the industry "if it
creates a credit crunch and hinders dealmaking," Rahul Jain,
deputy comptroller for New York, whose office collects taxes
from Wall Street for state coffers, told Reuters.
    Jain expects bonuses for 2023 to stay flat or shrink by 15%,
saying "anything better than that would be good news for New
York state and city budgets." 
    Annual banker bonuses, which are typically paid in the first
quarter, had already dropped sharply for 2022.
    Bonus payouts for employees in the securities industry in
New York fell 26% to an average of $176,700 in 2022 from a
record $240,400 in 2021, according to a report from New York
State Comptroller Thomas DiNapoli last week. 
    The industry accounts for 22% of the state's tax
collections, and is linked to one in every 11 jobs in the city,
the comptroller said.
    
    EXTREMELY CAUTIOUS
    Compensation was even lower for U.S. investment bankers,
whose bonuses shrank about 30% to 50% from 2021 as deals dried
up, estimated Johnson. Commercial bankers' bonuses in the United
States fell about 20%, he said.
    Traders at U.S. banks bucked the trend, in some cases
receiving modest gains in variable pay as trading activity
flourished in volatile markets last year.
    Now, financial industry workers are fretting not only about
pay, but job security. Even before the March crisis, Goldman
Sachs Group Inc  GS.N  had laid off more than 3,000 people and
Morgan Stanley  MS.N  cut about 1,600 staff. Both banks declined
to comment. 
    One person with knowledge of Goldman's policies said the
bank had resumed annual performance reviews that were suspended
during the pandemic. The Wall Street giant typically cuts about
5% of its lowest-performing staff as part of the process. 
    Other banks, including BNY Mellon and HSBC, are also
trimming their workforces, sources familiar with the plans have
said.
    Banks have mainly been adjusting their staffing levels by
not replacing employees who leave, said Johnson.
    Headcount for banks and financial services fell 5% to 10% in
the first quarter from a year earlier, estimated Max Kemnitzer,
managing director for banking and financial services at
PageGroup, a recruitment consultancy. 
    Banks have been "extremely" cautious on pay this year, and
have chosen to make cuts on the weakest areas likes IPOs and
M&A, said Kemnitzer.
    Investment firms, such as hedge funds and private equity
firms companies, as well as financial technology companies are
increasingly attracting talent away from banks, Kemnitzer said.
    While there are plenty of reasons to be glum, Wall Street
workers are enjoying one silver lining after the pandemic:
greater flexibility in structuring their workday. 
    Even among the companies with the strictest return-to-office
policies, employees are being given some options  - whether it
is working from home one day a week or flexible hours to support
commitments outside work, Kemnitzer added.

 (Reporting by Tatiana Bautzer; editing by Lananh Nguyen and
Deepa Babington)
 ((tatiana.bautzer@tr.com; Mob: +1646-239-7968; Reuters
Messaging: tatiana.bautzer.thomsonreuters.com@reuters.net))