Suddenly, the “L” word has returned. Over the past month, media reports have been surfacing that layoffs at A-List firms are on the rise. Several factors appear to be taking their toll—lower equities trading volumes, shrinking stock prices, profit fears over coming regulations, changes in compensation, and the redundancies that follow mergers.
The New York Times, Wall Street Journal and other publications have reported actual and potential layoffs affecting investment bankers, traders, brokers, technology staff and others at UBS, Morgan Stanley Smith Barney (the joint brokerage with Citigroup), Goldman Sachs, Bank of America, and Credit Suisse. The outplacement services provider Challenger, Gray & Christmas, Inc. reported that from January to May this year, 11,413 jobs were cut in the financial sector compared to 9,431 for the same period last year, which represents a jump of 21%.
Many firms traditionally trim staff at the end of the third quarter or at the start of the fourth. But these layoffs appear to be happening early in the summer quarter as many have revamped compensation schemes to discourage the major risk-taking of years past. Instead of big annual bonuses, salaries have gone up for all, which puts pressure on firms to streamline their ranks when profits are thinning. Firms are also bracing for the higher costs to come from Dodd-Frank.
Many in the blogosphere have correctly noted that this rise in layoffs should be cause for concern because of the many ripples it causes within the industry and with other industries. It’s certainly causing a lot of tension, fear and loathing for many in the industry who may have wanted to move to other firms, or to more challenging positions at different departments with their current employer.
But another issue is waiting in the wings. Will firms lose sight of growth and innovation when they have to retrench? How do they motivate the staff they keep especially those who are more interested in developing financial instruments and technology? I suspect that more than a few firms are quietly forging ahead with real innovations despite the economic challenges. During this limbo, many firms are opting to cautiously embrace cloud computing, mobile technologies and social media to at least keep up with the competition.
But, at some point, a firm or two will seize the first-mover advantage and pave the way forward. Until then, the early summer layoffs are likely to put growth and innovation on hold.
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