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The terrible truth about the coming redundancies

4 November 2008

Sarah Butcher

It’s becoming harder to find a bank that hasn’t already laid off at least 10% of its staff. But with revenues still catastrophically low, headcount reductions to date could prove a pinprick compared to what’s coming next. Based on average pay per head for the year so far, we’ve calculated how many more people each bank would need to cut in order to maintain its compensation ratio (compensation costs as a percentage of revenues) in line with 2007. The results range from the farcical (Merrill Lynch) to the disturbing (Credit Suisse), and the reassuring (Goldman and Morgan Stanley).

Merrill Lynch

Revenues Q1-Q3: 2008 – $834m; 2007 – $19,442m

Compensation costs Q1-Q3: 2008 – $11,170m; 2007 – $11,564m

Compensation ratio Q1-Q3: 2008 – 1,339%; 2007 – 59%

Headcount Q3: 2008 – 60,900; 2007 – 64,200

Average comp per head: 2008 – $183k

Layoffs over the past year: 3,300

Layoffs required to maintain compensation ratio: 58,195

Credit Suisse (investment bank only)

Revenues Q1-Q3: 2008 – CHF2,736m; 2007 – CHF16,217m

Compensation costs Q1-Q3: 2008 – CHF5,682m; 2007 – CHF8,111m

Compensation ratio Q1-Q3: 2008 – 207%; 2007 – 50%

Headcount Q3: 2008 – 21,300; 2007 – 20,399

Average comp per head: CHF266k (US$228k)

Layoffs over the past year: None; 1,000 staff added*

Layoffs required to maintain compensation ratio: 16,161

Deutsche Bank

Revenues Q1-Q3: 2008 – €6,102m; 2007 – €14,620m

Compensation costs Q1-Q3: 2008 – €3,250m; 2007 – €5,217m

Compensation ratio Q1-Q3: 2008 – 53%, 2007 – 36%

Headcount Q3: 2008 – 15,574; 2007 – 17,215

Average comp per head: 2008 – €209k

Layoffs over the past year: 1,668

Layoffs required to maintain compensation ratio: 5,130

UBS

Revenues Q1-Q3: 2008 – minus CHF21,418m; 2007 – CHF11,065m

Compensation costs Q1-Q3: 2008 – CHF4,589m; 2007 – CHF8,326m

Compensation ratio Q1-Q3: 2008 – unquantifiable; 2007 – 75.2%

Headcount Q3: 2008 – 18,901; 2007 – 22,666

Average comp per head: 2008 – CHF243k (US$208k)

Layoffs over the past year: 3,765**

Layoffs required to maintain compensation ratio: Everyone

JPMorgan (investment bank only)

Revenues Q1-Q3: 2008 – $12,516m; 2007 – $14,998m

Compensation costs Q1-Q3: 2008 – $6,535m; 2007 – $6,404m

Compensation ratio Q1-Q3: 2008 – 52%; 2007 – 43%

Headcount Q3: 2008 – 30,989; 2007 – 25,961

Average comp per head: 2008 – $211k

Layoffs over the past year: None; 5,298 staff added

Layoffs required to maintain compensation ratio: 5,647

Morgan Stanley

Revenues Q1-Q3: 2008 – $22,881m; 2007 – $28,476m

Compensation costs Q1-Q3: 2008 – $10,726m; 2007 – $13,365m

Compensation ratio Q1-Q3: 2008 – 46.9%; 2007 – 46.9%

Headcount Q3: 2008 – 46,383; 2007 – 47,713

Average comp per head: $231k

Layoffs over the past year: 1,330

Layoffs required to maintain compensation ratio: No additional layoffs required

Goldman Sachs

Revenues Q1-Q3: 2008 – $23,800m; 2007 – $35,246m

Compensation costs Q1-Q3: 2008 – $11,424m; 2007 – $16,918m

Compensation ratio Q1-Q3: 2008 – 48%; 2007 – 48%

Headcount Q3: 2008 – 32,569; 2007 – 29,905

Average comp per head: 2008 – $351k

Layoffs over the past year: None; 2,664 staff added***

Layoffs required to maintain compensation ratio: No additional layoffs required

• *Between Q1 and Q308 vs. Q1 and Q307, excluding 500 layoffs announced in October

• ** Between Q1 and Q308 vs. Q1 and Q307; excluding 1,901 layoffs announced in October

• ***Between Q1 and Q308 vs. Q1 and Q307, excluding 3,200 layoffs announced in October

Comments (18)

Surely it's easier to just cut pay? Most of it's paid in bonus anyway, and those people getting donuts this year will help reduce the comp/revenue ratio.

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Comments (18)

  • You are assuming they will maintain this ratio - why?

    ct 04 Nov 2008

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  • Surely it's easier to just cut pay?  Most of it's paid in bonus anyway, and those people getting donuts this year will help reduce the comp/revenue ratio.

    Rohan 04 Nov 2008

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  • Hi CT and Rohan,

    It should be easy to cut pay in theory. But compensation figures for the first ninth months of the year, which include accrued bonuses, suggest banks aren't cutting overall bonus pools in line with revenues (although they may be planning to allocate bonuses only to top peformers and to give everyone else little or nothing).

    As a result, pay is rising dramatically as a % of revenue. Either bonus accruals will have to be slashed massively in the fourth quarter, or headcount will have to be cut, or shareholders will have to live with substantially higher compensation ratios from now on.

    Sarah, Editor, eFinancialCareers 04 Nov 2008

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  • JPM may not have made any lay offs in 2008, but they have already started cutting staff. Approx 8% of head count has already been cut, with more redundancies happening almost every month. Also with JPM why have not the redundancies at Bear been taken into consideration?

    R 04 Nov 2008

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  • If the measure in produces results which can be  farcical (and ignore the fact that you still need employees to run a bank), then surely the measure itself is farcical and an article which uses it as the basis of a story is also a farce.

    Trevor Treblant 04 Nov 2008

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  • Sarah,
    I am happy to find the oppportunity to ask a question to an Editor. This question as been suggested to me buy the daily BBC breakfast news, and by the words you use in the title of your article.
    The question is:
    What do you think of the role of the newspapers and TV in the crisis should be, given that the trust of people in the future is a critical parameter to limit the extend of the recession?

    Eric 04 Nov 2008

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  • how can you have a negative revenue ... looks like you've got your stats wrong ... to illustrate an obvious point ... The less Robert Peston like articles we have the better for everyone.

    not at one of those 04 Nov 2008

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  • Revenues at UBS investment bank were negative due to losses in FICC.
    Eric, I think the roll of the press is to report and analyse events in order to offer a perspective on the future. This article paints a worst case scenario. It's unlikely to happen, but shows how much banks would need to cut headcount by if they were to maintain compensation ratios.

    Sarah, Editor, eFinancialCareers 04 Nov 2008

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  • Hi Sarah,

    This is an interesting study, but instead of taking peak market earnings/compensation, I would have taken "normal" (average over a cycle) numbers.. maybe 2007 was way too high?

    Bear 04 Nov 2008

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  • According your numbers credit suisse is running at a major loss for this year. Even If the compensations costs are deferred bonuses, this does not bode well for the bank.

    Puzzled 04 Nov 2008

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