Watershed for global banking industry as wave of firings reshapes the market
John Brady, co-head of MF Global’s Chicago office, was
having a vodka cocktail at the Ritz- Carlton in Naples, Florida, overlooking
the Gulf of Mexico, on the day his company reported its largest-ever quarterly
“Wow, the sun just set,” Brady said to his wife and two
colleagues attending a conference with him, he recalled in an interview. “I
hope it doesn’t set on MF Global.”
A week later, on Oct 31, the firm led by former Goldman
Sachs Group co-Chief executive officer Jon Corzine collapsed. Brady and 1,065
colleagues joined a wave of firings that has washed away more than 200,000 jobs
in the global financial-services industry this year, eclipsing 174,000 in 2009.
BNP Paribas and UniCredit announced cuts last week, and the
carnage likely will worsen as Europe’s sovereign-debt crisis roils markets.
“This is something very different,” said Huw Jenkins, a
former head of investment banking at UBS, who’s now a London-based managing
partner at Brazil’s Banco BTG Pactual. “This is a structural change. The
industry is shrinking.”
Wall Street rebounded from the financial crisis of 2008 with
the help of unprecedented government support, including loans from the US
Federal Reserve. Goldman Sachs posted record profit the following year, and
bonuses paid to securities-firm employees in New York City rose 17 percent to
$20.3bn, according to New York State Comptroller Thomas DiNapoli.
Now, faced with higher capital requirements, the failure of
exotic financial products and diminished proprietary trading, the industry is
undergoing what Steven Eckhaus, chairman of the executive-employment practice
at Katten Muchin Rosenman, called “a paradigm shift.”
The New York attorney, whose clients have included former
Lehman Brothers Holdings chief financial officer Erin Callan, said he has
stopped giving his “spiel” about inherent talent leading to new work.
In interviews, a dozen people who have lost jobs at firms
including Societe Generale, Royal Bank of Scotland Group and Jefferies Group described
a grim banking landscape that also includes Occupy Wall Street protests against
unemployment stuck above 9 percent and income inequality.
“These are by far my darkest days,” said Scott Schubert, 49,
who was dismissed in late 2008 as a mergers-and-acquisitions banker at
Jefferies, a New York-based securities firm, and has been unemployed since.
“It’s harder and harder to look for a job and feel that there’s nothing there.”
Banks, insurers and asset managers in Western Europe have
been hardest hit, announcing about 105,000 dismissals this year, 66 percent
more than the region’s losses in 2008 at the depths of the financial crisis.
The 50,000 job cuts in North America this year are more than twice last year’s
and fewer than the 175,000 in 2008.
Almost every week since August has brought news of firings
by the world’s biggest banks. HSBC Holdings, Europe’s biggest lender, announced
that month it would slash 30,000 jobs by the end of 2013. In September, Bank of
America, the second-largest US lender, said it would cut the same number of
jobs. Both banks are trimming about 10 percent of their employees. Last week,
BNP Paribas, France’s largest bank, said it will cut about 1,400 jobs at its
corporate and investment- banking unit, and UniCredit, Italy’s biggest, said it
plans to eliminate 6,150 positions by 2015.
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“It’s a once-in-a-generation challenge,” said John Purcell,
founder of London-based executive search firm Purcell & Co. “Everyone who
has worked in the City since 1985 will have no idea of how to cope with this
level of dislocation.”
Neil Brener, a psychiatrist whose patients work in London’s
City and Canary Wharf financial districts said the stress is contributing to
panic attacks, binge drinking and chest pains.
“Because there are fewer jobs, people are unhappy about
being stuck,” Brener said. “They don’t have options about moving, and there is
a sense of feeling trapped.”
London hiring could be frozen next year, according to the
Centre for Economics and Business Research. Headcount in the City and Canary
Wharf may fall to 288,225 by the end of the year, 27,000 fewer than in 2010 and
the lowest since at least 1998, when there were 289,666 jobs, according to the
London- based research firm.
Wall Street won’t regain its lost jobs “until about 2023,”
Marisa Di Natale, an economist at Moody’s Analytics in West Chester,
Pennsylvania, said in an email.
That’s not encouraging for Michael Reiner, 44, who lost his
job in June as a credit strategist in New York for Societe Generale, France’s
second-largest bank, whose shares are down 60 percent this year. When he called
his wife to tell her the news, she was home watching “The Company Men,” a film
about corporate downsizing, he said.
It wasn’t the first time Reiner had lost a job on Wall
Street. He worked at Bear Stearns for 14 years until the firm collapsed in
March 2008 and was taken over in a fire sale by JPMorgan Chase & Co. He
said he was happy to have some time off with his family and go to Little League
When he began looking for a job, he “wanted to find a place
for the next 14 years,” he said. A recruiter brought him to Paris-based Societe
Generale. It didn’t last that long.
It’s harder to talk about losing a job the second time,
Reiner said. “There are a lot of people I haven’t told.”
Opportunities for employment “evaporated” as the European
debt crisis escalated, he said. Now he spends his time going to his daughter’s
field hockey games and managing his investments. He’s planning to make maple
syrup from the trees in the backyard of his home in Briarcliff Manor, New York.
For Schubert, the former Jefferies banker in his third year
looking for work, the longer he’s out of a job, the harder it is for him to
tell his 10-year-old son to do his homework, he said.
“It might seem outwardly to him that I’ve given up,” he said
in an interview this month from his four-bedroom home in Glen Ridge, New
Jersey. “I can’t come to the table and say, ‘Well, when you were five, I worked
Schubert, who received a master’s degree in business
administration from New York University in 1989 and was a managing director
specializing in middle-market M&A deals at Jefferies, said he wasn’t
surprised when he lost his job in 2008 during the financial crisis. He thought
unemployment would last 12 months at most.
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“The first year out was fruitless,” he said. “There wasn’t
much hiring going on at all.”
By the middle of 2010, more potential employers seemed
interested, and he felt “something was imminent,” he said. Nothing happened.
This year, he has become increasingly disheartened by bad
news on Wall Street, and it’s more difficult to stay in touch with former
colleagues as time goes by, he said.
On the August weekend of Hurricane Irene, training to coach
his son’s soccer team alongside younger fathers, being “overly competitive for
a man of my age,” Schubert twisted his right knee, he said. He aggravated the
injury doing yard work and worries how much his health insurance will help, he
While his investment choices haven’t been “too terrible,” he
will consider selling his house if he doesn’t find a job. “God, I hope it’s in
the next six months,” he said.
Hetal Patel, 44, a foreign-exchange trader who worked at
London-based Lloyds Banking Group for more than 20 years until last month, said
he doesn’t plan to look for work until early next year, “when budgets become
clearer and perhaps conditions improve.”
Shares of his former company, controlled by the British
government since a bailout in 2008, have fallen 64 percent this year, and the
bank has posted a pretax loss of $6bn in the first nine months. It announced
15,000 job cuts in June.
Another lender backed by the UK, Edinburgh-based RBS, has
announced about 30,000 job cuts, including 2,000 this year, since receiving the
world’s biggest government bailout in 2008. Its shares are down 50 percent in
2011, and CEO Stephen Hester said Nov 4 the investment bank “will have to
Tim Leary, 29, a director in high-yield and distressed trading,
lost his job there on No. 7. After he got the news, he called his wife to say
he’d see her and their 4-month-old son for breakfast.
He drove back to Manhattan from his office in Stamford,
Connecticut, and put together a resume for the first time in years. He said he
plans to spend “a fair amount of time figuring out what the landscape is”
before starting his search.
industry always seems to get it wrong and they over-hire,” said Philip Keevil,
65, a former head of investment banking at S.G. Warburg & Co and now a
partner at New York-based advisory firm Compass Advisers. “They are
over-optimistic and then periodically throw large numbers out.”
Morale on Wall Street and London is “probably as bad, if not
worse” than it has been in decades, said Keevil.
Wall Street bonuses are expected to fall in 2011 from the
$128,530 average last year, DiNapoli, the state comptroller, said in October.
Even so, when Goldman Sachs set aside 24 percent less to pay employees in the
first nine months than in the same period last year, the amount, $10bn, was
equal to $292,836 for each of its 34,200 workers as of Sept. 30. That’s nearly
six times the median household income in the US, where 49.1 million live in
poverty, according to Census Bureau data.
Wyatt Laikind, 26, made three times as much in his first
year out of college working at Citigroup as his single mother earned when he
was growing up in western Massachusetts.
“It was like winning the lottery to get that job,” said
Laikind, who worked as an associate on the New York-based bank’s high-yield
He got a job on Wall Street because he “was under the
impression that it was a more meritocratic environment,” and “my hard work and
intelligence would be paid off,” he said.
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At first, he liked the excitement, he said. Then, after
financial regulations curtailed proprietary trading, the job became “less
appealing.” He said he didn’t like smiling at clients while having to figure
out how to profit from them.
In July, after a vacation, he called his boss to quit, he
said in an interview from Quito, Ecuador, where he is now working for Equitable
Origin, a start-up that offers a certification system for oil exploration. His
salary is less than 5 percent of what he made at Citigroup, he lives with
intermittent hot water, and he was robbed at knifepoint last month, he said.
“I feel happier on a daily basis,” Laikind said.
His tone was different in a later email.
“I wasn’t brought up in luxury, so I like to think I can
tough it out,” he wrote, describing the sagging mattress he slept on in jeans
and a hooded sweatshirt to stay warm. “But I may have to give it up and try
going back to finance soon.”
“Until now, at many firms, a lot of investment bankers have
been convinced that we are living now in a limited period where things are a
bit more difficult and afterwards the old world will come back,” Kaspar Villiger,
70, chairman of Zurich-based UBS said in an interview this month. “This
illusion has now vanished.”
Increased capital requirements agreed to by the Basel
Committee on Banking Supervision will limit banks’ use of borrowed funds to
boost profit, lower their return on equity and likely reduce executive
compensation, analysts say. High leverage “was the juice in the system,” said
Ilana Weinstein, CEO of New York-based search firm IDW Group. “It’s gone.”
For Brady, 42, the vanishing point at MF Global arrived
after he returned to Chicago from Florida. He thought the New York-based
futures brokerage would “weather the storm,” even as Moody’s Investors Service
cut its rating and shares plunged, he said. He got word that another company
would buy the firm while at a Talking Heads cover-band concert and celebrated
with a friend by drinking Anchor Steam beer and shots of Jameson.
He woke on Oct 31 at 4:40 am and searched for deal reports
on his phone while standing in his boxer shorts with an electric toothbrush in
the other hand. He didn’t find any.
The acquiring firm, Interactive Brokers Group, pulled out of
the deal after a discrepancy in client accounts surfaced, and MF Global filed
for bankruptcy later that day.
At first, Brady thought his company would survive, he said.
His wife thought he was in denial. His mood changed when he was sitting in the
home office adjoining his bedroom, looking at the value of his holdings.
“My Fidelity account looks like my bar tab from just a week
ago,” Brady said.
On Nov 11, a human resources executive asked colleagues on
Brady’s floor to gather by his desk, which looks out on the Willis Tower, the
tallest building in the US They were all fired. She told them to show receipts
for large personal belongings to the plainclothes security guards by the
elevators, and that checks would be sent in the mail, Brady said. Someone asked
if the checks would bounce. She said she didn’t know.
Brady, who said he wasn’t aware of the size of the bets MF
Global made on European sovereign debt, wrote to clients this month saying he’s
looking to join a firm that believes “integrity and honesty are the single most
important ingredients to success.” He said last week he is optimistic.
Good. These people are immoral scum and should be put to hard labor.