Headcount headaches for fixed income

By Hayley McDowell

Headlines on job cuts have dominated the investment banking world recently, with fixed income headcounts at the forefront of reductions.

The fixed income business is in a state of transition, as traders are being forced into moving away from traditional relationship driven trades. Instead, using a multitude of electronic trading platforms.

A recent survey by Coalition, a business intelligence provider, found that headcount in trading among the top global investment banks has been reduced by almost 20% since 2010 and 2015.

Traders in fixed income appear to have suffered most, as poor annual revenues and increased regulatory costs have pressured investment banks to cut costs.

At the end of 2015, Morgan Stanley confirmed 470 staff in fixed income, currencies and commodities (FICC) were to be cut. The news came as the bank revealed its third quarter revenues for fixed income declined by a significant $414 million from $997 million in 2014, to $583 million in 2015.

A similar scenario occurred at Credit Suisse, when the bank announced a reduction of 4,000 jobs following a dive in profits in 2015. It was the bank’s first loss since the financial crisis in 2008.  The mass job cuts are part of Credit Suisse’s long term plans to cut costs and lower its break-even point.

Just before this, in October, Credit Suisse created in Global Markets (GM) division which brought its fixed income and equities businesses under a single roof. The bank announced its GM division was undergoing a restructure as it plans to “further reduce fixed income legacy positions.”

Goldman Sachs has been the latest investment bank to respond to a decline in FICC revenues by trimming its headcount. A number of traders in the bank’s fixed income division were made redundant after it reported a 13% decline in revenues in 2015.

Challenging market conditions, lower client activity and a lack of revenue growth and low returns are all highlighted as reasons behind the reduction in fixed income headcount.

The severity of declines in fixed income revenues is demonstrated in a bank index created by Coalition. It found that FICC revenues have decreased by a significant 39% between 2010 and 2015. FICC revenues contributed to an overall decline in investment bank performance for the second consecutive year.

However, the decline has slowed slightly, as between 2009 and 2014 FICC revenues plummeted by over 50%, according to the same study a year ago.

The index surveyed the top 12 global investment banks, including data from BAML, Citi, JP Morgan, Goldman Sachs, Morgan Stanley, UBS and Deutsche Bank.

So, which investment bank will announce cuts in fixed income next?

One thing is for sure, the fixed income business is struggling. As global investment banks deal with increasing regulatory costs, fines and an overall challenging market, the focus has shifted to streamlining business units which are not performing – like fixed income.

Streamlining makes way for headcount reductions.

As we move into 2016, the headlines remain the same. Jobs in the trading world are being cut, and show no sign of letting up. I expect to be writing another story on job cuts in a fixed income division at a major investment bank very soon.

Which investment bank? We’ll let you know as soon as we find out…