The world's largest investment banks are not immune from global instability brought by geopolitical conflicts among major market players. To survive, big banks along the rank of HSBC, Barclays, Societe Generale, Citigroup, and Deutsche Bank were compelled to undergo job cuts after job cuts.
Overall, there had been nearly 30,000 lay-offs in these banks since April this year. The lay-offs were particularly pronounced in the European market, with Deutsche Bank leading its counterparts at about 18,000 jobs rendered obsolete. Societe Generale, meanwhile, had let go of about 1,600 workers while Citigroup is reportedly planning to cut hundreds of jobs from its trading division.
More recently, UBS Group AG's investment bank co-heads Peiro Novelli and Rob Karofsky hinted that internal reshuffles are underway, according to unnamed sources. Though both executives were careful to describe their decision as mere reshuffling, sources said the move may result in the shedding of hundreds of jobs.
While the trend can be attributed to market challenges, such as declining interest rates and sluggish trading volumes, automation has emerged to be the biggest challenge for the bank sector. For example, many of the world's banks have automated stock and bond trading, a move which drastically cut human intervention into half. Automation has also been the trend with transactions involving traditional cash equities as well as fixed-income trading. The only bank positions where human interaction is still needed are mostly the face-to-face customer service positions and credit verification process.
On top of all these, investments banks also need to get ready for the Basel IV Rules which will be rolled out by 2022. Once implemented, banks will be compelled to increase capital requirements which will therefor make their profits smaller.
On the other hand, private equity firms and debt funds, in the likes of Blackstone and Citadel, would not be required to increase their capital requirements. This would mean that apart from the competition they bring to investment banks, these non-banks entities have a lot of room to hire more people, according to Mayra Rodriguez Valladares, managing principal at capital markets consultancy MRV Associates.
Indeed, the outlook for these investment banks gets dimmer as they continue to operate in a negative rates environment, according to Andrew Lowe, a banks analyst at Berenberg.
For former Bear Stearns banker Christopher Whalen, however, there are still ways for these investment banks to succeed despite conditions at present. One way is by focusing on consumer banking which the big players like Goldman Sachs are heavily getting involved with as of late.