Investment banks are cutting jobs in equities faster than any other division as revenue recovers at a slower pace than the rest of their businesses and more trading is automated.
Employees on stocks desks fell by 8.5 percent globally in the first nine months of last year, according to a survey by Coalition Ltd., an industry analytics firm. That compares with a 6.6 percent drop in fixed-income workers and a 5.8 percent decrease for origination and advisory functions, the data show.
Banks fired workers in equities after declining trading volume reduced revenue at the same time as the growth of automated stock and options transactions squeezed margins. Trades that require human involvement cost 2.05 cents per share while those done by computer cost 1.08 cent, Tabb Group LLC said. Forty investment banks from Bank of America Corp. to Nomura Holdings Inc. announced more than 68,000 job cuts in 2012, according to data compiled by Bloomberg Industries.
“No matter what happens, the way that the business has been run will be permanently changed by this challenge,” Mike Di Iorio, head of equities at Barclays Capital for Asia Pacific said in Hong Kong Dec. 24. “The sort of changes that are being contemplated in the cash business are changes people were contemplating 10 years ago, in terms of creating a more efficient model and introducing a more thoughtful approach.”
Global banking and markets revenue grew 53 percent in the third quarter of 2012, the first increase in a year, according to data from nine banks compiled by Bloomberg Industries. Equities sales and trading revenue rose 6.7 percent in the same period, the slowest rebound apart from advisory services.
Nomura announced in September that it is folding equities execution outside of Japan into its Instinet Inc., the brokerage it acquired in 2006. The Tokyo-based company’s action may result in 200 job losses, according to a person briefed on the plans.
Royal Bank of Scotland Group Plc said in January it was exiting cash equities, the trading of common shares on public exchanges, and failed to find a buyer for its European unit. The Edinburgh-based lender sold units to Jefferies Group Inc. as well as ABN Amro Group NV and agreed in April to sell most of its Asia-Pacific unit to Malaysia’s CIMB Group Holdings Bhd., which retained 331 out of about 600 RBS employees in the region.
UniCredit SpA, Italy’s largest bank, said in June it would scale back its central and eastern European equities business. Equity workers will be among 1,600 jobs Morgan Stanley plans to eliminate from its investment bank in coming weeks, a person with direct knowledge of the matter said last week.
The industry’s consolidation goes beyond cash equities into derivatives, James Boyle, head of equities trading in Asia Pacific for Citigroup Inc. said in Hong Kong Dec. 18.
“Before, options market-making, warrants, single-stock options and cash could all run as silos and get decent returns,” he said. Now, “all the banks are looking at it from the efficiency side and how to best serve customers,” he said. “Some banks will even have the same trader running several businesses.”
In Asia outside of Japan, Barclays Plc is combining traditional client-facing equity sales with program and electronic trading under the same managers, Di Iorio said. That change has already been made to units in the U.S. and Japan.
The nine largest global investment banks -- Deutsche Bank AG, Barclays Plc, JPMorgan Chase & Co., Bank of America Corp., Citigroup, UBS AG, Credit Suisse Group AG, Goldman Sachs Group Inc. and Morgan Stanley -- announced more than 30,000 job cuts in the first nine months of the year, according to data compiled by Bloomberg.
Deutsche Bank is also considering reducing bonuses for investment bankers by as much as 20 percent on average for 2012, according to four people briefed on the matter. The Frankfurt-based lender is attempting to boost profitability and tie pay more closely to company performance.
Small brokerages that make trades by phone or sell research are finding it harder to earn commissions amid shrinking volume and increased automation.
ThinkEquity LLC, Rodman & Renshaw LLC and WJB Capital Group Inc. closed last year, while Atlantic Equities LLP, the London-based brokerage that provides research on U.S. stocks to European clients, ended a foray into New York. Trading firms from Ticonderoga Securities LLC to Oscar Gruss & Son Inc. have also fired equity traders or shut during 2012.
“It’s still an overbrokered industry and it will continue to shrink,” Alec Levine, an equity derivatives strategist at Newedge Group SA in New York, said in a Jan. 8 interview.
Equity volume is falling around the world. Average daily trading on the Stoxx Europe 600 Index retreated 11 percent last year, according to data compiled by Bloomberg. Among companies in Hong Kong’s Hang Seng Index, volume slumped 13 percent in the period, while it dropped 4.8 percent on the Nikkei 225 Stock Average in Japan. For companies listed on U.S. exchanges it fell 18 percent, the data show.
In 2011, bond divisions suffered the biggest job losses. The number of equity jobs worldwide fell 2.4 percent, while fixed income headcount contracted 7.4 percent, according to Coalition. The job index includes Barclays, Bank of America, Citigroup, Credit Suisse Group AG, Deutsche Bank, JPMorgan, Morgan Stanley, Royal Bank of Scotland Group Plc and UBS.
For Nomura, channeling all equity execution through Instinet saved money, John Adair, head of equities in Asia ex-Japan, and Glenn Lesko, chief executive officer of Instinet in Asia said in a press briefing on Sept. 27. Adair has since resigned, according to two people with knowledge of the situation and Norikazu Akedo is now the sole head of Asia-Pacific equities.
The platforms will continue to evolve in coming months, Citigroup’s Boyle said, and will bring the need for employees with more diverse skills.
“The competitive landscape 18 months from now will be significantly different than it is today and I think we are well positioned,” Boyle said.
“Job functions have changed over the past year and interactions have become much more holistic. We’re training people on different things,” he said. “Sales people are becoming more product literate and traders are developing client relationships.”