Wall Street squeeze explains i-bank job jitters

September 22, 2010

Wall Street’s bankers and traders are getting jittery again. This time, it’s not fear of regulatory backlash that has them concerned, it’s the more traditional worries about bonuses and layoffs. That’s because the industry has suffered a couple of tough quarters right after banks started to hire again. Unless business picks up soon, the prospect of less revenue feeding more mouths means job cuts are in the offing.

The cull may have started already. Bank of America is trimming up to 5 percent of staff in parts of its investment bank. Others may not be far behind. One place to look for vulnerabilities is the line in earnings reports detailing the average compensation per employee banks have put aside.

Take Goldman Sachs, which has bumped up its headcount by 7.5 percent since last September. Consensus estimates put its third-quarter revenue at $9.5 billion — 7 percent above its disappointing second quarter, but almost a quarter lower than last summer. Assuming the firm withholds 43 percent of that for pay, as it did in the first half of the year, it will have set aside so far this year $392,000 per employee. That doesn’t sound too shabby — but it’s 25 percent less than in the first nine months of 2009.

That leaves Goldman, along with other banks in similar situations, with a dilemma. There’s plenty of noise about deals that might happen at some point and boost revenue — not least share offerings. And those transactions could help kick-start trading markets, which smaller rival Jefferies Group described as “painfully slow across the board” in its third-quarter report. But if such business fails to materialize, then Goldman will have to pay staff for kicking their heels. That’ll take money away from those bankers who are still raking in some lucre.

JPMorgan isn’t in quite so tight a situation — based on estimates for the third quarter, its bonus stash through September may only be 14 percent under the first nine months of last year. Morgan Stanley, meanwhile, which has increased its revenue this year, may end up squirreling away 11 percent more per employee. That may give it breathing room some rivals cannot afford. But if business doesn’t pick up soon, it won’t be far behind with the knife.

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