In the year that economists began referring to as “The Great Resignation” — others called it "The Big Quit" — to describe the turmoil in the labour market, the big investment banks are somehow entering the final stretch with more staff than they started with. Despite the heavy costs involved, it was the right thing to do.
The Great Resignation described the unusual situation, first observed in the US, in which, despite high unemployment levels, workers left their jobs in droves. In April, a record 4m Americans quit.
The highest quit rates have been in the food service and retail industries but it would be strange for such a big trend not to affect financial services, too. Indeed, several bankers are understood to have re-evaluated their priorities during the pandemic and left the industry in search of greater meaning elsewhere.
But the banks have worked hard to hire more staff this year as they sought to keep up with the record amounts of work to be done in the rampant M&A and capital markets, and they seem to have succeeded.
Citigroup’s headcount was 210,000 at the beginning of the year. By the end of the third quarter, it was 220,000. JP Morgan started the year with fewer than 280,000 employees and now has more than 290,000. Across the Street, positions have been filled faster than they have been vacated.
This has come at a cost. This year, banks were forced to increase salaries for analysts after junior bankers expressed dissatisfaction with working conditions. At Morgan Stanley, the bill for salaries and bonuses within its international securities division, where M&A and capital markets sit, is up 12% year-on-year at $2.25bn, according to its third quarter results.
Some observers have pointed out that hiring a lot more people on higher salaries while markets are hot could lead to problems down the line if business quietens down in the future.
“You don’t have the same ability to manage your cost base because a significantly greater proportion of it is fixed,” pointed out a recruiter. “So the only way to manage it is to cut, as opposed to managing it through reducing the bonus pool, because the bonus pool makes up a significantly smaller portion of total people cost than it used to.”
This raises the prospect of a painful situation if things turn sour.
But what the banks discovered this year is that a crisis does not always call for lay-offs, and it is also very painful to be short staffed at a critical moment.
Who knows what next year will bring; it is impossible to say. But banks have prepared for anything by keeping their desks fully staffed.
