Layoffs in the banking industry are set to slow this year after about 62,000 people in the sector lost jobs in 2023, the worst tally of employment losses since the global financial crisis.
The new year has started with one global banking giant announcing a job cut of about a third of last year's total.
Citigroup, the third-largest lender in the US, on Friday announced plans to cut 20,000 jobs within the next two years, raising questions about the health of the banking sector in the world's biggest economy.
However, analysts say despite mounting pressure on income amid slowing economic momentum, most global banks will not have to execute the same scale of employment cuts as last year.
“We think the worst is over when it comes to cutting jobs. Most of the job efficiency problems have been tackled and this year we expect [better] performance in the results from these banks,” Naeem Aslam, chief investment officer at Zaye Capital Markets, said.
New York-based Citi on Friday reported that it had swung to a $1.8 billion loss in the fourth quarter and that the planned cuts are part of its strategy to optimise costs.
The job cuts at Citi are part of its multiyear efforts to cut bureaucracy, increase profits and boost a stock that has lagged peers.
The bank plans to reduce its global workforce of 239,000 by about 8 per cent through 2026, chief financial officer Mark Mason told reporters.
Citi will also no longer count 40,000 jobs on its payroll when it spins off and lists its Mexican consumer unit Banamex in an initial public offering. It eventually aims to reach a staffing level of 180,000 employees globally, Reuters cited Mr Mason as saying.
Though Citi's announcement of massive job cuts “raises questions about whether it is a continuation of the previous year's trend”, it is probably not the case, Vijay Valecha, chief investment officer at Century Financial, said.
Twenty of the world’s biggest banks cut at least 61,905 jobs in 2023, according to calculations by the Financial Times. That compares with more than 140,000 jobs slashed by the same lenders during the global financial crisis of 2007-2008.
The biggest contributor to that figure last year was Swiss bank UBS. It let go of about 13,000 employees after it brought Credit Suisse into its fold following the acquisition deal in June to save its liquidity-starved fellow Swiss lender from collapse.
Wells Fargo was the only other lender who cut more than 10,000 jobs.
Citi, Morgan Stanley, Bank of America, Goldman Sachs and JP Morgan Chase, America's biggest banks, laid off 5,000, 4,800, 4,000, 3,200 and 1,000 employees, respectively, the report said.
Mr Valecha and Ipek Ozkardeskaya, a senior analyst at Swissquote Bank, say layoffs last year were part of the purge of excess staff that lenders had rushed to hire when economies rebounded after the Covid-19 pandemic.
This year, the level of job losses will be far more contained.
“The bank layoffs should slow this year, given that last year's layoffs were also a correction of the massive hiring that the sector experienced during the post-pandemic months,” Ms Ozkardeskaya said.
“Yet the banking sector will see its income come under pressure due to Fed rate cuts, rising bad loans and slowing economies. Therefore, we could see the layoffs continue.”
The global economy is set to post the slowest half-decade growth in 30 years, with geopolitics and the raging conflict in the Middle East among key risks to the economic outlook, the World Bank said in its latest Global Economic Prospects report this month.
Most advanced and developing economies will grow more slowly this year and next than they did in the decade before the pandemic, with global gross domestic product slowing for a third year in a row to 2.4 per cent in 2024 before increasing to 2.7 per cent in 2025.
The slowing economy, coupled with a divergent economic landscape, will challenge the banking industry in 2024 as lenders' ability to generate income and manage costs will be tested in new ways, Deloitte said in its 2024 Banking and Capital Markets Outlook report.
“Multiple disruptive forces are reshaping the foundational architecture of the banking and capital markets industry,” Deloitte said. “Higher interest rates, reduced money supply, more assertive regulations, climate change and geopolitical tensions are key drivers behind this transformation.”
Banks are already showing signs of reduced profitability.
Wells Fargo saw its shares drop 3 per cent on Friday after warning that it expects its net interest income to slide between 7 per cent to 9 per cent in 2024, once the US Federal Reserve starts lowering interest rates.
While the New York-based lender reported that its fourth-quarter profit jumped 9 per cent annually to $3.4 billion, chief executive Charles Scharf warned that “significant uncertainty exists regarding eventual timing and extent of Federal Reserve interest rate actions”.
Bank of America, meanwhile, posted a net profit of $3.1 billion in the fourth quarter, which was down more than 56 per cent year-on-year.
JP Morgan Chase, the biggest US bank by assets, has also reported a 15 per cent annual slide in its fourth quarter net income to $9.3 billion.
Goldman Sachs and Morgan Stanley are scheduled to report their earnings on Tuesday.
At least half of 2023’s job cuts came from US lenders, where investment banking businesses struggled to cope with reduced business volumes.
The mounting cost and reduced profitability pressures have prompted Wall Street to “safeguard profit margins by reducing headcount”, Mr Valecha said.
“Investment banks particularly face a challenging scenario with a second consecutive year of plummeting fees as deal-making and public listings dwindled.”
However, despite a difficult year in terms of cost-cutting, banks have faith in the strength of the US economy.
“The US economy continues to be resilient, with consumers still spending and markets currently expect a soft landing,” Jamie Dimon, JP Morgan's chief executive and chairman, said in a statement.
A soft landing is a strategy by the Fed to bring down inflation without causing a recession, he said.
Bank of America chief financial officer Alastair Borthwick and Wells Fargo's Mr Scharf echoed confidence in consumers, saying the banks have plenty of firepower and their balance sheets were still strong.
