Banking Careers Swing Toward Compliance After Dodd-Frank
After a three-decade career in banking, John Hurst found himself unemployed in November, caught up in Bank of America Corp.’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 U.S. 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 Inc.
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.
With restrictions on risk and trading and low revenue at banks, the jobs will not return to the U.S. 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 Inc. (GS) has eliminated 3,200 jobs in the 12 months through June and said Aug. 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 Inc. 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 U.S. 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.
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.
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 (BKX), which tracks the 24 largest U.S. and regional banks, has fallen about 28 percent from four years ago. Banks increased their lending 1.4 percent in the second quarter by $102 billion, with a 0.9 percent increase in residential mortgage loans totaling $16.6 billion, according to the FDIC quarterly banking report released on Aug. 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 will probably not look the same as it has in the past because of all the new regulations globally with capital requirements and leverage ratios,” said Michael Karp, CEO of Options Group, an executive search and compensation firm in New York. “The banks will probably never be able to do trade the way they did in the past.”
Banks are not cutting jobs fast enough, said Paul Miller, managing director with FBR Capital Markets Corp. in Arlington, Virginia. “The industry has to be smaller,” he said. “The system that existed five years ago does not exist anymore.”
That’s what Hurst realized when he started his search. He enrolled in classes to brush up on interviewing skills at a community college, sought advice from employment program Charlotte Works and learned how to use the social networking site LinkedIn. Hurst said leaving banking gave him the opportunity to pursue his dream of being a financial planner.
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 organization that provides training and networking for job seekers.
“They didn’t know where the jobs would be in a few quarters,” he said. Given the legislation in Congress, “they didn’t know if they’d be hiring people or laying off people.”
While cuts continue in trading, opportunities are growing in compliance, wealth management and mortgage servicing. Staff in the latter category may be temporary to assist banks with the boom in refinances and loan modifications.
Compliance jobs in banking have grown 3 percent since 2010, when the Dodd-Frank law was enacted, according to the Bureau of Labor Statistics. As of July 2, 119 Dodd-Frank rules have been finalized, while 142 have not yet been proposed, according to a Davis Polk & Wardwell LLP report.
Cliff Rossi, who left as managing director and chief risk officer for Citigroup’s Consumer Lending Group and is now executive-in-residence at the Robert H. Smith School of Business at the University of Maryland, said he sees the changes in banking affecting the courses and career choices of his students.
When he began teaching in 2009, they were clamoring to get into his course on financial engineering. Now they are filling classes in risk management and applying for regulatory jobs at banks and government agencies.
Sam Brownell, 29, is one such former student of Rossi’s. He was an equity researcher for Wunderlich Securities, a brokerage firm in Memphis, Tennessee, for eight months before he lost his job in May. He now is looking for a position in regulatory compliance, where he sees “more stable” work, he said.
“On the investment banking side, you see a lot of people that are just trying to keep their head above water,” Brownell said. “It’s not a great environment for innovation and learning and mentoring, especially someone who is young like me.”
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