Investment banks and the scourge of pre-Christmas job cuts

efinancialcareers.com:

It happens every year, but this Christmas especially there are a lot of people in banks staring at their screens, dreading an unexpected invitation to a meeting with line manager, at which a member of the HR team also happens to be in attendance. In the words of one Citi trading insider, the next few weeks could be «brutal.»

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The chart below, showing the cost income ratio at Barclays International and at Deutsche's investment bank, explains why. Although revenues in some investment banking divisions (M&A, ECM and DCM) aretracking up in the fourth quarter compared to the nadir of last year and although attendees at Goldman's financial services conference have been reflecting on the improving outlook, costs are consuming an increasing proportion of revenues. Banks are under pressure to do something about it.

Action is being taken. As we reported today, Santander is cutting from its UK technology team. Barclays is cutting 900 people in the UK, albeit mostly in support functions at the moment. Citi has put London staff at risk and is cutting globally.  Wells Fargo yesterday set aside up to $1bn for «unanticipated» severance costs. 

«Underperformers are going to be swept out of everywhere in the next few weeks,» says the head of one London search firm, speaking on condition of anonymity. «It's all about cutting people before bonuses so that you're just paying them out of their salary. What you don't want to do is to pay a cash bonus and then to have to pay them a chunk of their new deferred bonus when you let them go.» 

Most US banks pay people at the end of January, giving them a few weeks yet to cut heads. European banks typically pay in February and March and have longer to