Layoffs Hit Wall Street As Financial Needs Change
It's hard to tell if the Occupy Wall Street protests had much impact on banks, but banks are doing some de-Occupying within their own ranks. It wasn't as bad as the massive layoffs following the 2008 meltdown, but last year was painful for Wall Street. Bank of America, Citigroup, Goldman, Morgan Stanley — almost all the big banks — announced big layoffs, totaling more than 60,000 employees.
That's not surprising, given last year's losses. In one quarter, the securities industry lost $3 billion. For the full year, the industry is expected to have made money, but just half of what it did compared to the previous year.
Bank analyst Nancy Bush says with businesses and consumers still focused on reducing debt, there just is not the same need for financial services as a whole as there was before.
"And that's why you are seeing the banks respond to the present environment with layoffs, branch closures, etc.," she says. "We just don't need them anymore; it's that simple."
A Climate Of Caution
There have been fewer big corporate deals, and doing those deals brings in a lot of money for banks. There's also been a drop in company stock and bond offerings that generate big fees.
"If you've got a business built around trading and investing banking, you've got a problem, because you are not generating the types of earnings that you would like," says bank analyst Dick Bove with Rochdale Securities.
There are also new rules limiting, for example, the fees banks can charge retailers for debit card transactions. Those have been cut in half.
Banks used to make big profits trading with their own money, and that's now being curtailed by regulators who say it's too risky. Regulators are also requiring banks to put more money aside in case of future financial downturns. That might make them safer, but it means Wall Street firms have less money to invest or lend.
Then there's the general climate of caution.
"People don't want to take risks because they are uncertain about the future," says Paul Miller, a bank analyst at FBR Capital Markets. He cites fears about Europe's debt crisis as a top reason for Wall Street's falling profits.
"Until people get more bullish on the future, it's going to be very difficult for Wall Street to make money and they will continue to shed employees. They will continue to cut people's pay," Miller says.
Smaller Bonuses, Relatively Speaking
For those still employed, year-end bonuses being handed out now are expected to be as much as 30 percent lower compared with a year ago.
"Last year there was this generalized groaning about payouts being down, about their bonuses being down," Bush says. "This year? Not a peep. [They're] happy to have a job."
Smaller bonuses may please critics of Wall Street, but to put things into perspective, average salaries for these workers last year (not including bonuses) was more than $360,000. And top executives and the biggest deal makers will continue to earn millions.
"Wall Street tends to go through these paroxysms of, you know, growth and contraction," she says. "This is different. This is the financial services industry looking at its prospects over a long period of years."
The outlook in the years ahead is for a smaller, more stable and less profitable industry.