Dozens of Thousands to Lose Wall Street Jobs

Thousands of Wall Street workers will lose their jobs

Even though it would be a misstatement to claim that Wall Street is in bad shape, the financial sector is not having its best period either. The overall atmosphere on the market and the numbers clearly show that 2011 was not as bad as 2008. Unfortunately, for the biggest names in the industry it was harsh enough to make decisions that are never easy: layoffs. Almost all the big banks, including giants like Bank of America, Citigroup, Goldman, and Morgan Stanley announced that they will start letting their employees go. In result, the total of over 60,000 people will lose their Wall Street jobs.

Why?

Losses. This is the quickest answer that in a single word explains what triggered decisions about the layoffs. The more detailed and expanded reply would be saying that the securities industry lost $3 billion in a single quarter! Yet, even with such a staggering amount lost, the financial sector still managed to generate profits. However, comparing to the previous year these profits are only about a half of what analysts had expected.

Reduced need for financial services

According to a bank analyst Nancy Bush, a vast amount of businesses and companies, as well as individual consumers, first and foremost focuses on reducing their debts. Comparing with previous years, there are fewer loan and credit applications, which has led to the reduced need for financial services in a broad meaning of the term. “And that’s why you are seeing the banks respond to the present environment with layoffs, branch closures, etc. We just don’t need them anymore; it’s that simple,” explains Bush.

Reduced number of big corporate deals

When consumers, small businesses, and large corporations do not turn to banks for financial services, the banks not only have no need, but also no way of doing big and profitable corporate deals. As a result, prices of their bonds and stocks significantly go down. “If you’ve got a business built around trading and investing banking, you’ve got a problem, because you are not generating the types of earnings that you would like,” sums up the situation bank analyst Dick Bove with Rochdale Securities.

New rules are burden to banks

Banks do not have an easy life in the current economic climate. There are many new rules that make it impossible for them to generate similar earnings as in previous years. For example, the fees banks are allowed to charge retailers for debit card transactions have been limited to a half of what they used to be. Also, in order to reduce the risk of bankruptcy, the regulators are saying no to banks that want to trade with their own money. They also tell banks to put some money aside, just in case of any financial troubles in the future.

Obviously, all these new rules make perfect sense from one point of view but from the banks’ standpoint they mean less funds to lend or invest. “People don’t want to take risks because they are uncertain about the future. Until people get more bullish on the future, it’s going to be very difficult for Wall Street to make money and they will continue to shed employees. They will continue to cut people’s pay,” says Paul Miller, a bank analyst at FBR Capital Markets.

Forget bonuses, just don’t let us go

Paul Miller’s statement that Wall Street “will continue to cut people’s pay” sounds about right. For those who are lucky enough to still have their jobs, this is the time of year when they typically receive their year-end bonuses. They were probably rather unhappy to hear that the bonuses would be about 30 percent lower than the last year. Still, no one seemed to complain. “Last year there was this generalized groaning about payouts being down, about their bonuses being down. This year? Not a peep. Happy to have a job,” says Nancy Bush.

Critics should be pleased

With activity of movements like Occupy Wall Street and open antagonism towards Wall Street in the media, there is no secret that the securities industry has many critics. They do not seem to like the fact that average salaries for the finance industry employees were over $360,000 last year. Of course, the top executives made not hundreds of thousands but millions of dollars in 2011. In 2012 lives of over 60,000 people, who will lose their jobs, are going to be dramatically changed. At the same time, however, this should please the Wall Street critics. At least temporarily.