The grim times for Wall Street and the finance-dependent New York economy continue, as Citigroup is expected to begin”aggressive” headcount cuts in investment banking. We’ve also added an update about Goldman making similarly deep cuts in investment banking, However, it is important to note that the firms define investment banking differently. At Goldman, it consists of services sold to CFOs, such as mergers & acquisitons advisory and corporate fundraising. Private equity firms are also customers for these services. Citi defines investment banking more inclusively to include certain trading operations (anyone with more detail as to Citi’s current org structure is encouraged to speak up).
First, from the Wall Street Journal:
Citigroup Inc., in the latest sign of bloodletting on Wall Street, is set this week to embark on an aggressive round of layoffs within its investment-banking division, people familiar with the matter said.
The New York bank….plans to dismiss as much as 10% of its world-wide investment-banking work force of roughly 65,000, the people said. The first batch of pink slips are likely to be handed out Monday….
Citigroup, which has more than 350,000 employees around the world, had fired at least 9,000 workers as of March 31. But the coming cuts are unusual in their scope and severity. The firm’s mergers-and-acquisitions bankers are expected to see especially sharp cuts, in part because the group’s ranks weren’t trimmed as much as other units earlier this year. But no major department of the investment bank is likely to be spared, aside from some businesses in emerging markets and Citigroup’s lucrative transactions-services arm.
Entire trading desks in New York and other cities are expected to be eliminated. And unlike Citigroup’s other recent reductions, this round will feature layoffs of dozens of senior managing directors, the people said.
The cuts are the first big move by John Havens, who took the helm of Citigroup’s institutional-clients group, which includes the investment bank, in late March. Mr. Havens, a longtime lieutenant of Citigroup Chief Executive Vikram Pandit, has concluded that some of the investment bank’s businesses have been rendered obsolete by the credit crunch, while he sees others as operating inefficiently and generating inadequate returns. Mr. Pandit’s goal is to reduce the firm’s annual expenses by $15 billion.
Update 6/23, 12:45 AM: The Financial Times reports that similarly deep cuts have already started at Goldman, which heretofore had seemed to escape the industry’s turmoil:
Bankers fear the pace of job losses in the investment banking industry is set to accelerate over the summer after it emerged that Goldman Sachs, the sector’s star performer, cut staff at its investment banking division last week.
The Wall Street bank is now expected to cut up to 10 per cent of staff in the division that handles mergers and acquisition advice and corporate fundraisings over the course of 2008, with a fresh round of trimming starting last week.
The latest cutbacks, which come in spite of impressive second-quarter results, are separate from Goldman’s annual performance review, which typically sees the worst-performing 5 per cent of staff leave the bank…
Goldman has so far suffered the least damage in the global credit crunch and remains the leading M&A adviser. But in an environment where mega buy-outs have disappeared and M&A activity has fallen sharply, even Goldman has felt the squeeze.
Goldman, in common with the rest of the industry, has been gradually shedding staff this year, or sending bankers previously based in the US and Europe to the Middle East and Asia, where business remains buoyant. Group headcount fell by about 400 between the first and second quarter.
However, job losses across the industry have been less severe than many expected this year, and Goldman’s heightened pessimism about its need to retain its more experienced staff during the rest of 2008 could prove a pretext for other banks to wield the axe with greater force….
Goldman is still expected to increase its overall headcount this year, although its staffing mix will change as it recruits aggressively from universities.
“Any bank that says it’s not cutting is lying,” said one industry insider on Sunday. “It’s getting to halfway through the year and everyone can see that business hasn’t picked up.”
Note that the same thing happened in the early 1990s, when employment in M&A shrank to roughly 1/4 of its former size, and many firms folded formerly separate M&A departments into other investment banking units.
“Note that the same thing happened in the early 1990s, when employment in M&A shrank to roughly 1/4 of its former size, and many firms folded formerly separate M&A departments into other investment banking units.”
You’ll scare the newbies, who’ve never heard of 75% headcount reductions. The worst they seem to know about is the tech bust, when headcount only shrank around 25%.
Only 10%? That’s a downpayment. I’ve got two posts on the “Harvard MBA Indicator”. This is overdue. Now you’ve got BA students at: Harvard, Stanford, Yale, etc., who think investment banking is a gravy train. Boy are they about to be surprised.
In my opinion much more important info on the WSJ feed today. Specifically, the window of new investors seems to be closing for the financials. Could be an interesting week!
Thanks for the heads up. Will have a look. However, given that sovereign wealth funds have been pretty cool to bank overtures, I had assumed fund raising would be difficult and costly. That doesn’t mean my views were widely shared, however.
Well at least 10% is a step in the right direction. Hopefully the Carbofuran will kick in soon and eliminate more of the vultures. :-)