After a three-decade career in banking, John Hurst found himself unemployed in November, caught up in Bank of America’s plans to cut more than 30,000 employees by 2015.
Hurst tried for three months to find another position in the industry, figuring his 26 years at the bank, most recently as a vice president reporting completions for required courses, would help. After a few interviews and no offers, “I started thinking, what is Plan B?” he said. “I haven’t had to look for a job in 37 years.”
He sought advice from a state employment program in his hometown of Charlotte, North Carolina, where his old bank is based - and wound up switching fields last month, joining HF Financial as a representative with a goal of becoming a financial planner.
Hurst’s experience isn’t uncommon in the US banking industry. By the second quarter of this year, banks had lost more than 62,000 jobs since September 2008, following the bankruptcy of Lehman Brothers Holdings.
To help implement the 2010 Dodd-Frank banking overhaul law and cope with the wave of foreclosures and refinancings, financial institutions hired compliance and mortgage servicing staff. Now, facing a slowing economy and new capital and regulatory requirements, banks are undertaking another wave of cuts — this time in response to fundamental shifts in the industry, said analysts including Richard Bove in Lutz, Florida, with Rochdale Securities LLC.
Business model
With restrictions on risk and trading and low revenue at banks, the jobs will not return to the US financial system, according to Bove. “Is the business model for the banks permanently broken?” he said. “Not permanently broken but permanently changed.”
Goldman Sachs Group has eliminated 3,200 jobs in the 12 months through June and said August 15 it would trim another 20 to 30 positions in its sales and trading division, according to a person briefed on the matter. Morgan Stanley and Citigroup also plan staff cuts. Head count at Morgan Stanley will decline by about 700 in the second half, bringing total 2012 staff reductions to 4,000. Citigroup, the third-biggest US bank, will lose more than 1,500 jobs in its securities division by the end of the year.
“The banking industry is just a reflection of the economy in which it operates,” which “you really can’t outperform,” said Robert P. Kelly, former Bank of New York Mellon Corp. chairman and chief executive officer, in a phone interview.
Still optimistic
Kelly, 58, led the world’s biggest custodial bank from 2007 until he left last August over a dispute with its board. Kelly said he still is optimistic about the banking industry in the long term, even with a slower than expected expansion. He said he, like other bank CEOs, anticipated the economy would be growing faster by now.
“This is the slowest recovery I have ever experienced and I think that would be true for anyone working today,” he said. “Some of these changes that we’re witnessing aren’t just short term cyclical, they’re medium-term and they do require different responses than perhaps 10 years ago.”
Banks were reluctant to cut their staffs even more than they did after the 2008 crisis because they counted on the economy improving more than it has, said Roy Smith, a finance professor at New York University’s Stern School of Business and a former Goldman Sachs partner.
Greater requirements
That didn’t happen, and banks now face greater regulatory and capital requirements. “The structural problems are going to require that they change their business models,” he said. “That doesn’t mean they won’t come back, but they will come back thinner.”
The KBW Bank Index, which tracks the 24 largest US and regional banks, has fallen about 28 per cent from four years ago. Banks increased their lending 1.4 per cent in the second quarter by $102 billion, with a 0.9 per cent increase in residential mortgage loans totalling $16.6 billion, according to the FDIC quarterly banking report released on August 28.
The job cuts come as banks are trying to comply with new capital requirements, known as Basel III, that begin to take effect next year. The Basel Committee on Banking Supervision has agreed on rules requiring banks to increase available capital to bolster the cushion against potential losses and better measure and control their risk.
Bankers have downsized their trading units in response to the Volcker Rule, named for former Federal Reserve Chairman Paul Volcker, which seeks to prevent deposit-taking firms from making bets with their own capital and limits their investment in hedge funds and private-equity firms.
The industry outlook has been so uncertain, bank recruiters have been unable to give clear direction to clients, said Steve Partridge, president and CEO of Charlotte Works, a public- private organisation that provides training and networking for job seekers.
