The Incredible Shrinking of the Investment Banking Industry

Before entering the investment publishing industry 20 years ago, I was a branch manager of a regional bank in the Dayton, Ohio area. It was a small bank with six branches in our area and then a dozen or so in Northern Ohio. I left the bank in order to finish my degree, not because of a restructuring or branch closure or anything like that. However, in the three years I worked for this bank, we went through two mergers and there were a number of jobs that were cut due to redundancy and overlap.

While this was the traditional banking industry and not investment banking, the consolidation going on in the industries aren’t all that different. The investment banking industry saw huge numbers of jobs cut in 2019 with some estimates as many as 75,000 jobs cut around the world. The vast majority of the cuts came in Europe, but they touched every corner of the globe.

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As for which banks are making the cuts, Societe Generale cut 1,600 jobs last year. Deutsche Bank announced that it would cut 18,000 jobs by 2022. HSBC announced that as many as 4,700 could be let go.

Here we are in the first full week of 2020 and we are already hearing about more cuts. UBS announced on Tuesday that it will cut as many as 500 jobs in its wealth management division. The bank is looking to cut costs and will eliminate three layers of management.

I have to say that the thing I disliked the most when I worked in the banking industry was all the layers of bureaucracy. We were a small bank and it still seemed like it took forever to get decisions made on little things due to all the managers that had to sign off on things. For UBS to acknowledge that the layers of management need to be cut is a step in the right direction for cutting costs.

In addition to the cuts from UBS, noted agriculture trading firm Louis Dreyfus is reportedly making job cuts as well. The firm hasn’t released anything formal, but the story was reported on Bloomberg and cited two internal sources that didn’t want to be named.

I will admit that I have kind of lumped investment banking and wealth management together, but in many cases, the two go hand in hand. We are also seeing cuts in the trading operations of many banks. Goldman Sachs used to have 500 people on its trading desks working as market makers. Now that trading desk has three people working at it.

Sure many of the jobs at trading desks have been lost due to advances in technology. Instead of traders working the desk, it is computer engineers behind the scenes that support automated trading. According to an article from the MIT Technology Review, there are 200 computer engineers supporting Goldman’s automated trading. Instead of looking for Ivy League economics majors, Wall Street is hiring more programmers and coders.

This trend has been going on for years and it doesn’t look like it will slow down anytime soon. Citigroup announced on Wednesday that it is looking to hire an additional 2,500 programmers this year. These programmers will support the trading and investment banking divisions. The article from American Banker quoted Stuart Riley, the global head of operations and technology for Citi. Riley commented that roughly three-quarters of the company’s trade orders last year were electronic.

The shift to tech-driven trading has created an interesting competition of sorts as Wall Street and Silicon Valley are now competing for some of the same talent. The relationship between the two has always seemed a little contentious, but they need one another and it seems like the reliance is only going to grow moving forward.

Look for investment banks to continue cutting jobs from the traditional trading desk roles and investment banking roles, but they will continue to hire programmers and coders as long as it allows them to increase profit.

About Rick Pendergraft

Rick has been studying, trading, analyzing and writing about the investment markets for over 30 years. He has worked for some of the largest financial publishers in the world and he has been quoted in the Wall Street Journal, USA Today, the New York Times and the Washington Post. In addition, he has been interviewed on Bloomberg, CNBC and Fox Business News. Rick’s analysis process includes fundamental, sentiment and technical analysis. Rick started college as an education major, wanting to teach economics, but eventually changed to majoring in Economics and received a Bachelor of Science in Economics from Wright State University. His desire to inform and educate people is at the heart of his writing.

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