Analysis: Wall Street assesses job cuts as deals slide in struggling markets

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NEW YORK, July 29 (Reuters) – Wall Street bosses are unsure whether to cut investment bankers or keep them on staff in hopes of a recovery after a brutal first half.

With the risks of a looming recession and the Federal Reserve aggressively raising rates to stem inflation, the prospects for settlement and funding have dried up.

Some banks are continuing to hire, but momentum has slowed from last year’s blistering pace and some expect cuts to be inevitable. While executives from the U.S. banking giants have said market activity could rebound from the first-half slump, it will likely be modest compared to a record year for deals in 2021. companies last year, supporting divisions banks that advise companies. Read more

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“There are a lot of people who think we’re going to get through this brutal uncertainty and that’s why, for example, there’s still a lot more hiring than we expected,” said Julian Bell, chief executive. and responsible for the Americas in Sheffield. Haworth, an executive search firm.

Investment banks hired 152 managing directors in the Americas in the first half, Sheffield Haworth said in a report. This is a relatively modest drop from the 192 senior bankers who got new jobs during the same period last year, which was the busiest on record for the industry as a whole.

For now, banks have delayed widespread job cuts, which Bell says is “because people realize we’re in for a pause rather than a disaster – at least so far.” .

But weakness emerged in segments of the banking sector.

JPMorgan Chase & Co (JPM.N), Wells Fargo & Co (WFC.N) and other mortgage lenders have downsized in recent months as the industry downsizes after expanding to deal with a increased pandemic demand. Read more

Global equity market deals fell nearly 69% in the first half from a year earlier, while mergers and acquisitions were down nearly 23%, according to Dealogic.

‘TOO MANY PEOPLE’

Tough times this year and a “poor” outlook for 2023 will prompt investment banks to cut staff by 5-10% and cut pay for those who remain, said Alan Johnson, chief executive of the consultancy. in compensation Johnson Associates.

“They won’t pay as well,” Johnson said. “People are making lists – usually it starts after Labor Day. Looking back, companies are overstaffed.”

Goldman Sachs Group Inc (GS.N) executives said the company had slowed hiring and restarted employee performance reviews, which had been suspended during the pandemic. This annual exercise generally weeds out underperformers. Read more

“There’s going to be more volatility and there’s going to be more uncertainty,” CEO David Solomon told analysts after the company released its second-quarter results on July 18. with prudence and dynamism.”

The company’s workforce grew to 47,000 at the end of June, up 15% on the previous year.

JPMorgan, which increased its corporate and investment banking workforce by 8% in the second quarter from a year earlier, was also cautious about deal prospects.

“While our existing pipeline remains healthy, backlog conversion may be difficult if current headwinds continue,” JPMorgan chief financial officer Jeremy Barnum said in its earnings call.

JPMorgan and Goldman declined to give further details when contacted by Reuters.

According to market research by accounting firm KPMG, executives in financial services and other sectors, including retail and technology, are significantly less positive about the trading outlook.

“The longer a bear cycle persists, the more institutions may be forced to consider capacity reductions,” Dylan Roberts, KPMG’s partner in charge of financial services strategy, told Reuters.

“There are other levers that banks can use before or in addition to downsizing,” such as cutting bonuses, he said.

A senior investment banker at a European firm in New York said the key question will be whether mergers and acquisitions return in 2023 and whether markets normalize.

“That will be the debate and the discussion that the banks will have at the end of the year,” the banker said.

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Reporting by Saeed Azhar in New York Editing by Lananh Nguyen and Matthew Lewis

Our standards: The Thomson Reuters Trust Principles.

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