Decreasing bank profit margins threaten major layoffs on Wall Street

Wall Street spent the past year indulging in a binge on bankers. Fears of a recession and rising interest rates have prompted some firms to lay off workers and suspend hiring. The New York Post cited sources saying that many financial firms heavily involved in mergers and acquisitions are now reluctant to make big deals.

During a gathering of executives from some of the biggest financial firms last week, it was reported that the layoffs could affect the industry's workforce by up to 10%. According to sources, the bloodbath could start by year's end.

The executives were reportedly told they should start planning for the layoffs by the end of the year. One source said that the discussion about the hiring freezes and the layoffs was focused on when people would start to feel the impact of the cuts.

Layoffs in major banks

This is a far cry from last spring when several junior bankers at Goldman Sachs told their managers that their work schedules were endangering their health.

According to one source, Jamie Dimon, the chief executive of JPMorgan Chase, will not allow employees to sit on the sidelines. Last month, the bank started laying off hundreds of workers in its mortgage division. It was reportedly due to the company's cyclical changes.

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In response to the pandemic, several banks, including Morgan Stanley, Goldman Sachs, and JPMorgan, increased the salaries of entry-level bankers by several hundred percent last year. The pay rise was also caused by the increasing number of so-called blank check companies to pump deal volume.

Unfortunately, the lack of deal activity has reduced the number of mergers and acquisitions. Last week, both Morgan Stanley and JPMorgan reported steep drops in their earnings. While Morgan Stanley noted that its equity underwriting fees had dropped 86%, JPMorgan reported that its investment banking fees had decreased by 54%.

According to Mike Mayo, a banking analyst at Wells Fargo, the banks should not spend their bonus money on the lavish lifestyles of their employees. He suggested that investment bankers should instead focus on their work.

High hopes for rebounding economy

Despite the gloomy economic outlook, many senior bankers are still reluctant to change their work schedules drastically until the summer. They are also not eager to burnish their reputations, and they are still hoping that the economy will start recovering in the fall.

In 2021, David Solomon, a junior banker of Goldman Sachs' investment banking division, reportedly revealed in a PowerPoint presentation that many of his junior colleagues were overworked.

According to a source, the next couple of months will be an excellent time for underperformers as banks will not be able to rehire them if they decide to let go of employees. In some cases, junior bankers' work weeks have shrunk to around 50 to 60 hours from 100 hours.

One insider said that the layoffs would happen, which would be very painful for many employees. This is because, unlike in previous economic downturns, this generation has never experienced the hardships of a prolonged recession.

"It's the worst-kept secret that layoffs will happen," an insider said. "There is an entire generation that has never been through an economic downturn. It's going to be new and painful for a lot of people."