Dec 1, 2023

Job cuts, lean bonuses loom over Europe's bankers in 2024 December 01, 2023 at 01:00 am EST Share * Bonuses largely expected to disappoint * Peak rates, new capital rules to crimp bank earnings * Hefty job cuts feared, firms still open to top talent LONDON, Dec 1 (Reuters) - A mix of global economicunease and geopolitical uncertainty means optimism is in shortsupply among bankers from the City of London to Frankfurt's'Mainhattan' financial district. Even rainmakers renowned for seemingly conjuring deals fromnowhere are struggling to see ways to work their magic and draginvestment banking revenues out of the doldrums. Finance executives, consultants and headhunters interviewedby Reuters predict subdued deal flows, modest bonuses for mostand heavy job cuts in 2024. "2023 will ultimately be one of the lowest corporate financefee pools in modern history," said Fabrizio Campelli, head ofCorporate Bank and Investment Bank at Deutsche Bank. The $2,669 billion of deals struck so far this year globallyis the lowest since 2005, Dealogic data shows, while in theEurope, Middle East and Africa region, the $616 billion of dealswhich have been completed is the lowest since 2004. It is not only corporate dealmaking that is on the backfoot. Banks are wary profits will come under pressure fromtighter regulation, including tougher capital requirementsdubbed the 'Basel Endgame' which are set to be rolled out byglobal regulators from 2025. And while consumer lending has boomed on the back of centralbank policy moves, margins are now in retreat as interest ratespeak and competition for deposits intensifies. "Overall, the outlook for the next few years for banks isflat revenue," said Ronan O'Kelly, partner and head of corporateand institutional banking for Europe at consultant Oliver Wyman. JOB CUTS Banks have already turned to cost cuts to try to weather thedownturn, which in a people-intensive business means job losses. Global growth is set to fall from 2.9% this year to 2.7% in2024 before picking up in 2025, the Organisation for EconomicCooperation and Development said on Wednesday. "Cost (cutting) is the biggest single lever that banks canpull to bring returns to where they should be," O'Kelly said. Barclays is weighing cutting up to 2,000back-office jobs in addition to layoffs across its UK retail,corporate and investment bank, Reuters reported, while rivalLloyds has put 2,500 jobs at risk. Challenger MetroBank said it could axe as many as 1 in 5 jobs. Major headcount contractions are also expected at UBSand Citi amid big restructurings. Workers' unions, however, say banks are overstating theirproblems after some reported record profits this year. Dominic Hook, national officer at Britain's Unite, said hewas fed up with them "pleading poverty". "The short-term approach of slashing workers, offshoring andoutsourcing services has been shown to fail everyone from localcommunities to small businesses," he said. BONUSES The dearth of activity means bonuses for this year arelikely to disappoint, although some banks may be more generousto retain talent in case of a sharp rebound, with Goldman Sachsamong those weighing hikes despite a dismal 2023. "At relatively quiet times like these, it is still importantto have the best people who are ready for when the market picksup again," said Vis Raghavan, CEO of EMEA and Co-Head of GlobalInvestment Banking, JP Morgan. Morgan McKinley's London Employment Monitor showed a 31%fall in financial services vacancies year-on-year in the thirdquarter, although some 52% of UK financial firms still plan tohire in the next six months. One of those predicting an uptick in business in 2024 isStephane Rambosson, co-founder of headhunter Vici Advisory. "Activity should be up next year, so if you don't pay yourbest people you risk losing them," Rambosson said. In order to reward the bankers who do remain, Deutsche BankCEO Christian Sewing has called on the European Unionto consider following Britain's lead by removing caps onvariable compensation. Santander Chair Ana Botin told an event this weeksuch reforms would help banks to better align staff remunerationwith shareholder returns. VOLATILITY Wars in Ukraine and the Middle East and tensions between theWest and China have led to caution in boardrooms, slowinginvestment and dealmaking, while putting all but the mostpressing refinancings on the back burner. "It's not a terrible time to be a banker but you can't keepeveryone busy and as productive throughout the cycle," said JPMorgan's Raghavan. "That said, there's $6 trillion in debt that needs to berefinanced over the next two years and banks will be doing thatwork but that is just flow, and the alpha is not in the flow,"he added, with reference to "alpha", how banks measure theirmoney-making advantage over competitors. Looming elections in the United States, India and Britainnext year are compounding the ongoing corporate inertia. And while London, Europe's leading finance hub according tothe Global Financial Centres Index, is part way through reformsto boost its competitiveness after Brexit, recent politicalructions have done lasting damage, several bankers said. Although uncertainty can stymie activity, it can also leadto market volatility that can boost trading teams, which couldprovide a welcome lift for banks in 2024. "Volatility in the wider world... can benefit the (trading)business in terms of client demand, risk spreads - so that canbe good for the business," said Oliver Wyman's O'Kelly. And although some bankers expect a tough 2024, others sensean opportunity for European banks from the Basel Endgame. U.S. banks could be forced to release $15-20 billion inrevenues that could be snapped up by rivals, according to ananalysis by Oliver Wyman, with around half of those expected tobe captured by other international banks. So what is the forecast from the rainmakers? "While the market has been slow, it's not without promise.It's like a spring you're pushing down ... when it pops up, ittends to do so with a lot of energy," Deutsche's Campelli said. (Additional reporting by Anousha Sakoui and Carolyn Cohn inLondon, Jesus Aguado in Madrid; Editing by Alexander Smith) Share