JPMorgan Leads Job Cuts as Banks Seek to Bolster Profit
Rising stock prices, rebounding profits, restored dividends and a growing economy are signaling to U.S. banks it’s time for more job cuts.
Even after the industry posted its best results since 2006, the six largest U.S. banks announced plans in the first three months of this year to eliminate about 21,000 positions, or 1.8 percent of their combined workforce, according to data compiled by Bloomberg. That’s the most since 2011’s third quarter. JPMorgan Chase & Co. (JPM), whose 259,000 people produced three straight years of record profit, topped the list with 17,000 reductions scheduled by the end of 2014.
Banks are under pressure to keep profit climbing amid weak revenue growth, and employees are among the biggest expenses after interest costs. The most vulnerable people work in units where demand is waning such as mortgage foreclosures. Their departures would come on top of 320,000 jobs culled from U.S. financial companies in the past five years, the data show.
“They have a better feel for what their business model looks like and they are starting to align headcount,” said Robert Dicks, a principal at Deloitte & Touche LLP in New York who advises financial firms on staffing. “We were out of whack for a couple of years, but we’re balanced right now.”
Banks may tell more about their personnel plans starting later this week when they report first-quarter results, with New York-based JPMorgan and Wells Fargo & Co. (WFC) scheduled for April 12.
The bulk of the firings will come in the first half of 2013, according to Jason Kennedy, chief executive officer of London-based recruiting firm Kennedy Group.
“Last year, they waited to make the cuts and it was a continuous bleed,” Kennedy said. This year, “the banks aren’t waiting.”
The housing market rebound means fewer people are needed in mortgage servicing to handle soured loans or review foreclosure documents. JPMorgan, led by CEO Jamie Dimon, 57, said last month it will cut 13,000 to 15,000 jobs in the mortgage unit through 2014. Kristin Lemkau, a spokeswoman for the biggest U.S. bank, said the firm will try to find new roles for as many people as possible and use attrition to minimize the impact.
Bank of America Corp. (BAC), ranked second by assets with a workforce of 267,000, cut about 5 percent in its appraisal unit and shut offices in Newark, New Jersey, and a suburb of Buffalo, New York, as part of a campaign by CEO Brian T. Moynihan, 53, to eliminate 30,000 positions. The lender also announced more than 370 cuts in California, a portion of which were related to mortgages, according to T.J. Crawford, a spokesman for the Charlotte, North Carolina-based bank.
“There is no need for these people,” said Gerard Cassidy, a bank analyst at RBC Capital Markets. The dismissals “should be viewed, not just for the banks but to the marketplace, as a positive.” Foreclosure filings in the U.S., including default and auction notices, fell 25 percent in February from a year earlier, according to RealtyTrac, the Irvine, California-based data provider.
American Express Co. (AXP), the biggest U.S. credit-card issuer by purchases, said Jan. 10 it plans to eliminate 5,400 jobs this year, or about 8.5 percent of the New York-based company’s 63,500-person workforce.
The cuts are largely in travel services, which is struggling to compete with bookings from Internet competitors. New hiring will leave the staff 4 percent to 6 percent below current levels, said Marina Norville, an AmEx spokeswoman.
“Experience tells us it’s better to do this from a position of strength, to stay ahead of trends instead of having to catch up,” she said.
Morgan Stanley (MS) said in January that the firm would eliminate 1,700 investment-banking positions from its staff of 57,000 and defer all bonuses for top earners. CEO James Gorman, 54, who has said his industry overpays workers, told analysts on a Jan. 18 conference call that the job cuts helped trim expenses, a “major driver of high returns.”
Wesley McDade, a spokesman for New York-based Morgan Stanley, declined to elaborate on the personnel reductions.
While traders have been hit hard after weak demand in equity and fixed-income markets, the worst may be over, according to Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. Over the next year, “these banks are just trimming the sails a little bit, they’re not cutting to the bone,” he said.
Citigroup Inc. (C), the third-biggest U.S. bank, said in December that it planned to eliminate 11,000 workers, which will save the New York-based firm more than $900 million. Goldman Sachs Group Inc. (GS), also based in New York, is in a “good position,” although it will “naturally” have some annual turnover, Gary Cohn, 52, president and chief operating officer, said in January.
Wells Fargo hasn’t had any mass dismissals this year, according to Bridget Braxton, a spokeswoman for the San Francisco-based bank. Since January, Wells Fargo has cut “small pockets” of employees across all business lines as part of the lender’s annual turnover, she said. Last year, the biggest U.S. home lender cut 5,300 workers, or about 2 percent of its 265,000-person workforce, Braxton said.
Total financial-industry employment, including insurance and other financial-services jobs, will show net gains throughout the year, according to Mark Zandi, chief U.S economist at Moody’s Analytics Inc. in West Chester, Pennsylvania.
“It will be very modest growth, but growth nonetheless,” Zandi said. “We have another three years of adjustment before we see significant growth.”
Commercial-banking employment fell 1.2 percent in March from a year earlier, according to preliminary data from the U.S. Labor Department. Securities brokerage employment slipped 0.4 percent in February from a year earlier, according to the latest available government data.
U.S. banks had $141.3 billion in net income last year, the second-best on record behind the $145.2 billion total reported for 2006, according to the Federal Deposit Insurance Corp. Shares for the six biggest advanced 47 percent as profit set records at Wells Fargo and JPMorgan.
As global stocks hover near all-time highs, financial firms are eager to expand their wealth-management divisions, according to Deloitte’s Dicks. More people also will be needed in risk management and compliance positions as banks continue to adjust to new federal rules and capital requirements, according to John Challenger, CEO of Chicago-based Challenger Gray & Christmas Inc., an employment-consulting firm.
Any respite may not last long, according to RBC Capital’s Cassidy.
“Fallout from the crisis is finally starting to go away,” he said. “But in the end, there will be fewer people working in the banking industry.”
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