Morgan Stanley cut 3,500 jobs in June in its deepest restructure since 2008. It was taken as a sign that the deal drought had forced Wall Street investment banks to tighten their belts.
That, at least, was the theory. Months later, Morgan Stanley’s chief executive James Gorman pointed to another reason for the redundancies: people staying put.
“We’ve had very low attrition, which is why we did some of the expense initiatives we did,” Gorman said in his third-quarter earnings call. “Among the 80,000 people we’ve got, attrition has been remarkably low and that’s just something we’ve got to work through.”
Morgan Stanley is far from alone. Cuts of 600 UK employees by PwC last month were blamed on a plunge in the number of resignations.
Bankers, lawyers, consultants and recruiters say normal levels of employee churn have evaporated as staff seek the security of their present employer. They fear being ‘last one in’ at a new job, should more cuts be rolled out.
“Attrition is at historical lows,” said one recruiter at a Wall Street bank.
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In the summer of last year, employee attrition rates at Big Four accounting firms in the UK were about 40%, according to data from workforce intelligence company Revelio Labs, provided to Financial News. Last month, this figure was 28%.
At European investment banks staff turnover has stalled at 19% — down from 25% in October 2022. Big Wall Street banks’ UK employee churn was 25% in October, down from 31% a year earlier.
“The combination of low attrition and weak activity levels put a lot of stress on organisations as they try to manage headcount levels,” said Craig Coben, the former global head of equity capital markets at Bank of America.
“Personnel policy is built around constant career progression towards greater seniority, with a substantial graduate intake to fill the junior ranks. But without natural attrition, the pyramid structure turns into something much more top-heavy,” he added.
Investment banks including Citigroup, Goldman Sachs and Morgan Stanley have cut thousands of jobs this year as fees have slumped by 20% after a torrid 2022. There is little sign of improvement and bankers fear more cuts are on the cards, even after the typical end of year pruning of underperforming staff.
“People are already writing off the first quarter of next year because they can see there’s no pipeline. The obvious thing to do is to talk up the second quarter, but it’s really finger in the air stuff,” said the global head of financial sponsors at a large European bank.
The great resignation during the pandemic years has been replaced with a fear of leaping into a new job. Employees are clinging to what they have in a period of geopolitical stress. This is becoming a headache for employers who also face slumps in revenue.
“It’s a normal course of business for those who have cut their teeth in the Big Four to scatter to jobs on the buy-side or big investment banks,” said one partner at a Big Four accounting firm. “Those recruitment streams have softened and fewer people are leaving. It’s a cycle, and this will change, but it will inevitably mean more cost-cutting as we have too many people.”
“The cuts have still largely been around the edges, and the lack of departures and continued investment in senior bankers has meant we’re stuck with headcount at 2020 levels,” said another senior dealmaker at a Wall Street bank.
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Revelio Labs’s numbers show UK headcount at US banks including Bank of America, Citi, Goldman Sachs, JPMorgan and Morgan Stanley has increased by 34% over five years and has continued to edge up in 2023.
Staff numbers at European investment banks including Barclays, BNP Paribas, Deutsche Bank, HSBC and UBS have declined by 3% over the same period.
At the Big Four in the UK, staff numbers have leapt by more than half since 2018.
“You are seeing a much more illiquid talent market. We find it a lot harder to persuade people to come to roles at the moment. That’s a real challenge, actually trying to get people into conversations,” said James O’Dowd, founder at consulting recruiter Patrick Morgan.
“Many senior professionals no longer have a bid from competitors or adjacent industries,” said Charlie Steel, head of Emea investment banking and private capital at headhunters Maven Search. “This then leaves reduced room for emerging talent and expensive headcount reduction exercises.”
Even after deep cuts this year, some firms are preparing fresh redundancies. Citi put hundreds of UK jobs under review on 28 November, having earlier consulted on 250 senior jobs. Barclays is expected to cut 2,000 back-office jobs as part of its plans to strip out £1.3bn in costs and is reviewing some investment banking activities.
Meanwhile, KPMG froze pay for its UK employees last month while also reducing bonus payments.
“How have we attracted and kept people?” said another Big Four partner. “It has led to huge pay rises. There will be a lot of realignment resulting in downsizing across not just the Big Four, but law firms, asset managers and investment banks. We have got a lot of that to come next year.”
“A lot of people took moves 18 months ago for a lot of money, and they now find themselves standing offside,” added O’Dowd. “It is very unlikely someone who made a move in the last 18 months to two years, with the exception of people with specific skills related to data or AI, is going to be able to move again for an increase.”
Bonuses across the banking sector are likely to be constrained again this year, according to specialist compensation consultant Johnson Associates, with M&A dealmakers seeing the biggest drop of up to 25%. Meanwhile, the UK government’s decision to lift the long-standing cap on bonuses is likely to allow banks to cut pay again this year, a lever they use to avoid stripping out too many staff.
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“The nimbler platforms, which typically weight most compensation towards performance in the form of bonus or carried interest, are better placed to ride out this wave,” said Steel. “The big banking platforms, which are no longer constrained by the bonus cap, will be relishing the prospect of reducing the fixed cost base.”
Despite the downturn, some firms are taking the opportunity to add employees in certain areas. O’Dowd said while M&A activity had slumped, Big Four firms are investing in busier sectors.
“In some ways, they are reshuffling their talent,” he said. “A lot of people who do transaction services have now been re-purposed in restructuring practices.”
He added that the other key dynamic is the shift in demand in skills. “There’s a real push towards tech and data-led skill sets, and you’re seeing consulting firms really invest into those areas and away from more traditional functions,” he said.
Meanwhile, the fallout at Wall Street investment banks such as Goldman, Morgan Stanley as well as Credit Suisse’s collapse in March has prompted European and US banks alike to open their doors, but only to senior talent.
Deutsche Bank and Jefferies have been particularly active in hiring Credit Suisse bankers, while Spanish bank Santander is taking on 250 dealmakers even as rivals have made cuts.
“Every bank has a core of people that just never leave because they’re so well taken care of and protected,” said the head of one European investment bank that has been hiring dealmakers.
“They’re very successful and it’s only really when events like Lehman’s collapse or Credit Suisse being absorbed that you’re actually able to hire those people,” they added.
“Good people have always been difficult to prise out,” said another senior European banker. “The bad times now just make it even harder.”
To contact the authors of this story with feedback or news, email Paul Clarke and James Booth
