Two weeks ago, Deutsche Bank announced it was set to fire “roughly” 23,000 people, or around a quarter of its workforce as new CEO John Cryan aims to cut costs as part of a reorganization undertaken in the wake of the ouster of Anshu Jain and Jürgen Fitschen.
Anyone who might have assumed that the massive layoffs at Deutsche Bank spoke solely to the bank’s individual circumstances and thus aren’t reflective of either the abysmal state of the European “recovery” or of broader industry trends, was disappointed when just hours later, Reuters reported that UniCredit, (Italy’s largest bank by assets) was now set to lay off 10,000 across its Italian, Austrian, and German operations.
In all, 33,000 pink slips in a single day. As we noted at the time, "the layoffs don’t say much for Europe’s recovery from the debt crisis and may also suggest that far from creating jobs, the persistence of ZIRP has crimped margins forcing banks to make up the difference by getting leaner."
Today, we learn that Bank of America is set to shed hundreds of jobs as Brian Moynihan looks to offset poor performance by cutting costs. Here’s WSJ with more:
Bank of America Corp. is expected to announce layoffs in its global banking and global markets unit as early as Tuesday, according to people familiar with the matter.
The layoffs will likely result in a couple of hundred job losses, according to these people. Investment banks often trim jobs at this time of year to clear the books before bonus season.
Since the spring, Bank of America Chief Executive Brian Moynihan has said that if results from the trading business don’t improve, the unit will have to cut expenses further. Bank of America’s second-quarter trading revenue, excluding an accounting adjustment, fell 2%.
U.S. investment banks have struggled to adjust to new regulations that have crimped revenue, and a slowdown in some corners of the world economy have caused some clients to pull back on trading.
Bank of America has struggled more than most. It is the only large U.S. bank to post a decline in revenue from trading and investment banking in the first half of 2015, a time when mergers were frequent and central-bank actions created an ideal environment for trading in assets like currencies. The bank’s 7% drop in revenue from that segment compared with a 7% increase at Goldman Sachs Group Inc. and a 19% increase at Morgan Stanley, according to company data compiled by analysts at UBS.
Here's one chart and a helpful look back at some key points from the bank's Q2 results which in many ways presaged the above:
But the biggest highlight was once again in the income statement, and specifically the Global Markets breakdown, where Net Income dropped $109 million from a year ago, driven by a 9% drop in FICC Y/Y "due to declines in credit-related businesses, primarily credit, mortgages and municipals, partially offset by improvements in macro products."
On the other hand, just like with JPM, "equities revenue improved $0.1B, or 13%, from 2Q14, driven largely by increased client activity in the Asia-Pacific region and strong performance in derivatives." In short: while traders are increasingly pulling away from illiquid, volatile fixed-income, it was the Chinese stock bubble to the rescue.
So with the bank's lifeblood dropping it had no choice but to once again trim expenses, which it did thanks to not only a drop in litigation charges (expect these to rebound in the coming quarters)...
... but also due to ongoing headcount reductions.
And while the bank's entire earnings release once again focuses on the improvement in credit quality and trends, it is worth asking just why did BofA decide to take its largest provision for losses in the past two quarters at any time over the past year.
In short: in a world in which FICC is no longer the trophy horse it once was, and where the bank has no choice but to "adjust" its NIM data suggesting things are hardly improving for the bank's organic net interest arbitrage business (as was the case with JPM), BofA will have trouble growing in the coming quarters absent a material change to market conditions, especially if the Chinese bubble has indeed burst and Q3 will no longer see the benefit of equity trading thanks to Asian farmers and housewives.