Banks limit job cuts for fear of missing rebound

Instead biggies like Morgan, UBS may move staff from worst-hit divisions into healthier areas

LONDON: Investment banks may have bucked a common trend by learning something from history: despite huge losses on bad home loans, they are at pains to avoid the mass job cuts many made and then regretted in the last market downturn.

Instead, the likes of Morgan Stanley and UBS AG , which have flagged lay-offs since the subprime mortgage crisis escalated in August, are likely to move some staff from worst-hit divisions into healthier areas whenever possible as they wait for hurt businesses to recover, market players say.

“In 2000-2001 banks cut numbers too quickly and when the markets came back people were basically caught short,” said one senior London-based investment banker.

This year, the job cutting began in the area closest to the mortgage troubles - loan origination and servicing - and later spread, affecting mainly leveraged finance and structured products such as collateralised debt obligations. But buoyant global markets have fuelled frenetic hiring by US and European banks in recent years and given the underlying staff numbers, the cuts look restrained.

In fact Bear Stearns Co Inc, which posted a much bigger-than-expected quarterly loss on Thursday, said its overall headcount as of November 30 had risen by 500 from a year ago despite the loss of about 1,400 employees in the fourth quarter.

One banking analyst at a global bank forecast more job losses in structured credit over the next few months but added: “The banks don’t want to let go of too many people because they feel this market will make a comeback.”

Bank of America Corp has taken some of the most drastic measures so far in response to the subprime crisis, slashing 3,000 jobs. But this is still only 1.5% of the bank’s total headcount.

“The cuts have been smaller than most of us would have expected,” the banking analyst said.

The extent of further headcount reductions across the world is difficult to predict because banks are reluctant to be seen as cost-cutters and are postponing job cuts until it is absolutely necessary, recruiters say. For now, banks prefer redeploying staff and are refraining from making forecasts.

After Morgan Stanley posted a fourth-quarter loss on Wednesday, chief financial officer Colm Kelleher said hiring plans are under review, adding that the bank will reallocate headcount worldwide from businesses that don’t need it.

“We’ll just see how the dice fall on that one,” he said.

There is more certainly about how investment banks are likely to refocus their activities away from the “fallen angel” of structured credit.

Analysts say commodities, distressed debt and restructuring are among businesses likely to steal the limelight - and staff - next year and forecast an overall move towards less complex, “plain vanilla” activities.

Wall Street firms have also started moving expatriate bankers in New York and London back to their home countries such as India and China. Recruitment for emerging markets looks set to remain in rude health as bankers expect them to keep equity issuance and M&A deals flowing next year.

Both Bear Stearns and JPMorgan Chase & Co, which have cut jobs, said they will boost headcount in growth areas.

“There’s a lot of interbank movement in equities where people are still hiring,” said Sam Dean, global head of equity syndicate at Deutsche Bank AG.

Major investment banks are still hiring in commodities and energy, while demand in emerging economies such as China should help offset any slowdown in the United States.

But the true extent of banking layoffs may not become clear until well into next year. “The early part of the year is always about recruitment, the latter part of the year, indeed Christmas time, is about any cuts that need to be made,” said Jonathan Evans, managing director of recruitment firm Sammons Associates.