It’s been five years since the 2008 financial crisis upended the global economy, and while corporate profits and national output have recovered, there are still 4.7 million fewer private sector jobs than at the beginning of the recession in 2007.
It sticks in the craw of many Americans that the very large financial institutions that helped sow the seeds of the crisis have returned to profitability while so many innocent bystanders remain out of work or have lost their homes. So under the heading of “if it makes you feel any better” we bring the news that big banks are continuing to shed jobs and shrink their operations as the weak global economy and increased regulations make their business models less lucrative.
Yesterday Deutsche Bank, Germany’s largest bank, announced that it would be cutting 1,900 jobs after its second quarter profit tumbled 46%. 1,500 of those job cuts will come from the investment banking division.
And it is not the only investment bank that is feeling the pinch. Switzerland’s UBS, which cut 3,500 jobs last year, also saw its profit drop precipitously — by 58% in the second quarter. According to Bloomberg News, however, the bank told reporters that additional measures to improve efficiency would be “silent as opposed to ones that are announced with some fanfare.” So I guess we won’t be hearing about those particular job cuts.
And on this side of the Atlantic, Citigroup recently told investors it would let go 1,200 employees, including 350 jobs from its securities division. Bank of America announced a plan last fall to cut 30,000 jobs to save more than $5 billion, and after a disappointing earnings report earlier this month, upped its cost-saving target by $3 billion, but did not disclose how many more jobs it would need to shed to reach that target. Morgan Stanley, Goldman Sachs and JPMorgan have all also announced plans to cut jobs or, at the very least, pare back compensation in an attempt to minimize expenses.
And that may not be the end of it, either. According to a recent editorial in Reuters by Peter Thal Larsen, “The investment job cull is finally underway.” He argues that notwithstanding poor earnings and anticipated slow global growth going forward, banks so far have been, “surprisingly reluctant to wield the axe.” Larsen continues:
“That’s partly due to persistent optimism: executives have been raised on the mantra that the industry bounces back after every crisis. The 2009 market rally persuaded many this time was no different. And even those who accept the industry must shrink have reason to hold off: if others blink first, the survivors might pick up market share.”
Unfortunately for banks, they can’t delude themselves any longer. The squeeze of regulation will only continue to tighten, and gun-shy businesses and consumers aren’t going to be seeking banking services with the verve that they did pre-crisis anytime soon.
Of course, any kind of job losses are bad for the global economy in the sense that the unemployed are a drag on the rest of us. And the moves will no doubt hurt the tax base, and municipal budgets, in financial capitals like New York City. But if you believe, as I do, that the global economy was far too oriented towards finance in the years leading up to the meltdown, this slimming down of the largest banks is probably a good thing in the long run.