One Word Sums Up Finance in 2012: Layoffs

The big bank layoffs that began last summer with the euro zone crisis have not yet run their course.

In July, for example, Credit Suisse said it would increase its cost-cutting plans by 50% to 3 billion Swiss francs and reduce expensesin its private banking and investment banking divisions. Citigroup said in January it would shed 5,000 jobs over a few quarters and has completed 2,000 of them. At the end of July, Deutsche Bank said it would cut 1,900 jobs by the end of the year. Meredith Whitney, who predicted in August 2010 that finance would lose 80,000 jobs over 18 months, has said that another 50,000 jobs on the Street are still set to be axed.

Through the year ended June 30, Bank of America, Citigroup, Goldman Sachs, Wells Fargo, Morgan Stanley and J.P. Morgan had cut 18,000 jobs, according to The Wall Street Journal.

Job cuts are becoming the norm as the industry finds itself unable to generate the level of revenue it once did. Investment banking revenue totaled about $31 billion in the first half of 2012, down from $40 billion in the first half of 2011 and flat from 2010's first half of $30 billion, according to data provided by Dealogic. Pending restrictions on proprietary trading, once a big money maker, are shrinking trading books while slow global growth is making firms hesitant to invest.

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Even Goldman Sachs has scaled back hiring

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"Right now it seems the only way to improve the bottom line is to cut costs," said Michael Karp, a managing partner at Options Group, a New York-based executive search and consulting firm. "That means compensation costs and head count reduction."

Dribs and Drabs

Banks are hiring in some areas, just not those with the excitement or level of compensation of trading or investment banking. Many firms are hiring wealth management and compliance personnel.

Elsewhere, layoffs are coming in dribs and drabs, casting a pall over the industry. Banks will have a "continuous striving for more efficiency than in the past," said Moshe Orenbuch, bank analyst with Credit Suisse, and it will "take several years to sort through." Layoffs are likely to "continue into the first quarter next year," Karp of Options Group said.

Sales and trading businesses as well as mergers and acquisition advisory work are likely to be targeted for cost-cutting. The Volcker Rule, which would prevent proprietary trading, still hasn't been hammered out, so firms have been shutting desks and spinning parts off their operations.

"I would expect to see further restructuring in sales and trading," said Richard Lipstein, managing director at Gilbert Tweed Associates, an international executive search firm focused on upper level management positions. "There's more trouble on the equities side rather than the fixed income side."

Another area ripe for layoffs: mergers and acquisitions. "M&A is still suffering and every industry has been suffering from a dearth of deals," said Lipstein, a result of faltering confidence among chief executives in doing deals. The value of all deals done in the first half of 2012 declined to around $1.2 trillion from around $1.4 trillion a year earlier, according to data provided by Dealogic.

Credit Suisse Layoffs

Credit Suisse will lay off 60 directors and managing directors who work in M&A and financing and debt issuance in its European investment banking operations. Junior levels in M&A have also been hit, said Dan Ryan, a partner specializing in financial services at Heidrick & Struggles, a Chicago-based executive search firm.

It's not just client-facing, revenue-generating roles that are being axed. Some back-office positions, if not being cut back severely, aren't being filled.

Goldman Sachs, which had planned to fill hundreds to a thousand new roles in technology and operations in Bangalore, India and Salt Lake City, Utah, has scaled back hiring, a person familiar with the matter said. Even positions that need to be filled due to people leaving aren't getting approval from hiring managers, this person said. Another person familiar with the hiring plans said the firm still expects to grow in those locations throughout the rest of the year. Goldman Sachs declined to comment.

Over the past couple years, the level most in danger of being laid off on Wall Street was the vice president rank. Now, even higher level senior directors and managing directors are being squeezed out, recruiters and employees say. More than 50 partners left Goldman Sachs last year.

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Now, higher level senior directors and MDs are being squeezed out

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"You're going to see more senior level departures and individuals forced out" this year, said Ryan of Heidrick & Struggles. Individuals who were "on the edge," or not bringing in enough revenue, will be cut, but cut quietly, he believes. "It's done subtly and discreetly and individuals are given some time to figure things out."

At Credit Suisse, the head of U.S. credit strategy, Ken Elgarten, and a managing director on the investment grade credit desk, Daniel Driscoll, recently departed the firm, people familiar with the matter said.

Wealth Management, Compliance

Yet amid the gloom, financial services firms are expanding businesses that will generate steady revenue.

Goldman Sachs has 15 wealth management positions available in Beijing, Hong Kong, Zurich, Atlanta, New York, San Francisco and Seattle, according to its website. A spokeswoman said the bank recently brought on a class of 75 advisers around the world, mostly drawn from campus recruiting efforts. The bank has nearly 70 summer associates working in the unit and plans to extend "dozens of offers" for full-time positions to begin in July 2013, the spokeswoman said.

Neil Owen, a London-based director at Robert Half, the international staffing firm, said he's seen demand for wealth management professionals from smaller regional banks and private banks, especially in Boston and New York.

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Amid the gloom, firms are hiring in businesses that generate steady revenue

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Within the wealth management division, Goldman's private bank is also growing. While it's not planning to do any "material hiring" for the rest of 2012, a spokeswoman said, it is likely to bring fill specialty lending and mortgage positions over time.

Goldman also remains bullish on emerging markets, Chief Financial Officer David Viniar said on a conference call with analysts in July, expanding its wealth management offerings in Asia and Latin America.

Emerging Markets

Also focused on emerging markets is Standard Chartered, the U.K. bank that expanded in those regions as other banks pulled back. The bank plans to add another 1,000 to 1,500 positions in the second half of this year, it said earlier this month. The bank also plans to add 16 new branches in China and India by next year and nearly 70 branches in Africa within the next couple of years. Standard Chartered currently has 90 branches in China, 94 in India and 183 in Africa.

Another practice area that continues to be in demand is risk management/compliance, recruiters said.

John Landers, division director at Robert Half, said quarter over quarter the demand for compliance and risk individuals has "increased significantly." His clients are clamoring for those who have three, five or more years of compliance and regulatory experience. Having a legal background or certifications such as certified fraud examiner or a CPA also helps, he said. There isn't as much demand for entry-level positions, he added.

Firms are bringing on compliance and risk staff to ensure they're in line with the latest regulations, such as Basel III, which will require U.S. banks with more than $50 billion in assets to set aside more capital beginning in January 2015, and Dodd-Frank, the financial regulation reform act passed in July 2010.

Recent trading and treasury blow-ups, such as those at UBS last September, MF Global last November and J.P. Morgan in April, are also driving hiring.

"They need as much talent as they can get, whether it's in credit risk, market risk or operational risk," said a capital markets recruiter. "Either you're a quant who does mathematical modeling to predict what might go wrong, or you're a risk expert who can work on the floor interacting with traders to see what kind of positions they're putting on."

Write to Julie Steinberg at julie.steinberg@dowjones.com