Some banks have been cutting jobs as a way to reduce expenses and improve efficiency in an inflationary environment that many expect to tip over into a recession sometime this year.
Now the question is: Will the layoffs ramp up or peter out?
Many of the job cuts have occurred in investment banking and mortgage lending, two lines of business that have been especially hard hit since interest rates began to surge last year, quelling capital markets activity and tempering demand for mortgages in a cooling housing market.
Other layoffs are more broad-based, as banks try to lower costs in preparation for a downturn.
The cuts follow a surge in bank employment during the first nine months of 2022, when the number of full-time equivalent employees at banks grew by more than 45,000 to reach 2.11 million, according to data provided by the Federal Deposit Insurance Corp. During the same nine months of 2021, the number of full-time equivalent employees increased by 3,440, FDIC data shows.
Whether or not
Loan demand ticked upward last year after stalling during the first two years of the pandemic. However, bankers are reporting a
Banks' earnings power is at an inflection point after several quarters in which solid revenue performance pushed expense growth to the back seat, said Scott Siefers, an analyst at Piper Sandler.
Now some of the revenue momentum is beginning to ease, and banks are "looking around the corner" to determine where they can make cuts to sustain earnings, he said.
"Expenses are the most controllable item that banks have," Siefers said. "And the biggest thing they can do is reduce the workforce [because] people expenses are quite substantial."
The list of banks announcing layoffs since early January includes Goldman Sachs, Capital One Financial and New York Community Bancorp. The cuts are coming at the same time that many technology companies, including online fintech lenders Upstart and LendingClub, are reducing staffing levels due to inflation and economic uncertainty.
New York City-based Goldman Sachs is planning to
New York Community in Hicksville, New York,
Mortgage volume woes are also being blamed for the latest round of layoffs at JPMorgan Chase, where home lending net revenue was down 46% during the fourth quarter. On Wednesday, the largest U.S. bank by assets
News of the downsizing came at the same time as JPMorgan announced it would hire more than 500 small business bankers over the next two years as part of a strategy to grow in that segment.
Truist Financial in Charlotte, North Carolina, has not publicly announced job cuts. But it eliminated about 5% of its investment banking workforce in late January due to ongoing uncertainty in dealmaking, according to a
A Truist spokesperson would not confirm or deny the 5% figure to American Banker. Last month, amid rumors of job cuts, Truist said that it continues to adjust the size of its workforce, hiring in some areas and downsizing in others by way of attrition and planned staffing reductions.
Some other banks are finding other ways to reduce the size of their workforces without laying off employees.
Huntington Bancshares in Columbus, Ohio, is preparing to roll out a voluntary retirement program, executives told investors during the company's fourth-quarter earnings call.
Another Columbus-based bank, Northwest Bancshares, is reducing its overall workforce by 12% through a combination of layoffs and not filling open positions, the $14.1 billion-asset company announced last month. In addition to closing eight branches, the workforce reduction will save Northwest about $16 million each year, President and CEO Louis Torchio said in the company's earnings report.
Don't be surprised if there are more layoff announcements in the months ahead amid what's shaping up to be a "blah" economic environment, said Chris Marinac, an analyst at Janney Montgomery Scott.
"It's a highly uncertain environment … and we have to be prepared and guarded" for more layoffs and workforce reductions, Marinac said. "It's just the uncertainty that we work with right now."
Ever since the start of the COVID-19 pandemic three years ago, it's been
During the early weeks of the crisis, many banks pledged to retain their employees, but by late summer and early fall of 2020, certain banks turned to layoffs due to plummeting loan demand and potential credit losses.
However, bursts of sustained activity in investment banking and mortgage lending meant that banks doing business in those areas kept hiring. Overall, the industry added 2,257 net full time equivalent employees in 2020 and another 3,440 in 2021, marking two consecutive years of small increases in bank employment, FDIC data shows.
Prior to 2020, the last time banks saw an uptick in employment was in 2017.
Data for full-year 2022 is not yet available, but through the end of the third quarter, employment was surging. Now, as worries about an impending recession continue to mount, and as banks think about their forward-looking revenue strategies, taking another look at expenses makes sense, Siefers said.
"I think everybody is in the same situation because the benefits of rate-based revenue performance have been so broad-based that a rollover of that phenomenon will be equally broad-based," Siefers said. "Everybody is having to take a second look at their costs."
Total expenses are expected to grow 6% this year among the banks covered by Piper Sandler analysts, Siefers said. In 2024, they are projected to increase another 4%, he said.
Amid inflationary pressure that's driving up costs, there's a fine line between reducing expenses by cutting the number of workers and continuing to be able to meet customers' needs, said Pieter van den Berg, a managing director at Boston Consulting Group.
Implementing more digital and analytical tools should help banks achieve or maintain positive operating leverage, he said.
"I do think banks are sort of reluctant to cut costs on the front end that would affect customers," van den Berg said. "I think they're more focused on middle- and back-office [operations]."
As for whether industrywide layoffs are on the horizon, "the honest answer is, I don't know," van den Berg said.
He said that "frankly, a lot of banks expect a recession. As a result, if customer demand comes down, that is when you're going to see banks making more dramatic cuts."
