Banks in the US and Europe have started firing traders in equities and other markets as low volumes take their toll, amid worries that activity is unlikely to return to pre-2008 crisis levels any time soon.
Citigroup last week started a consultation with employees over the future of dozens of traders globally in equities, fixed income and foreign exchange, while Bank of America Merrill Lynch cut an unspecified number of trading jobs in recent weeks, people familiar with the matter said.
Both banks declined to comment. Last week UniCredit quit western European equity sales and trading business run from London, with the potential loss of more than 100 jobs.
Bob Venable, head of equities at Robert W. Baird, a US investment bank, said: “As big banks were deleveraging two years ago the equities business looked like a good place to refocus as you did less proprietary trading. The maths worked okay through 2010, but with volumes down so much this year it isn’t working anymore. I’ve never seen anything like this in sheer volumes of cuts,” he added.
Trading volumes spiked in August and September amid political turmoil in the eurozone, but have slipped back, especially as small, or retail, investors have stayed on the sidelines. US investors have withdrawn $98bn from domestic and global equity mutual funds this year, according to the Investment Company Institute.
The share prices of interdealer brokers, such as Icap and Tullett Prebon, which act as intermediaries in the bond, interest rate derivatives and foreign exchange markets, have fallen sharply in recent months amid softening volumes. Berenberg Bank said such firms’ valuations “increasingly look to be pricing in a soft trading outlook.
“Overall trading activity will likely remain muted as financial markets remain frail and additional regulatory requirements such Basel III capital requirements weigh on turnover,” said the bank.
Asia has not been spared, with cash equity trading volumes at Hong Kong Exchanges & Clearing down by 35 per cent last week, compared with the year earlier, according to Equity Research Desk, a research firm. A number of US firms have closed or shrunk their equities offerings in recent months citing slowdowns in volumes and capital markets activity feeding into trading businesses. That includes boutique investment banks Gleacher & Co and FBR Capital, which said it would cut up to 35 per cent of its staff.
UBS is cutting its proprietary equity trading business as part of a big restructuring of its global investment banking business.
Companies said that most eliminations were coming from “flow” businesses based on volumes rather than cutting new products, such as algorithm development, because high-frequency trading was making up the bulk of activity while retail and institutional investors pulled back.
Banks last cut back savagely on trading desks in the wake of the 2008 financial crisis, only to rehire in the first half of the following year amid predictions that volumes would return.
However, trading experts say banks over-hired, partly amid competitive pressure from each other. Much of the volume that did return in 2010 was driven by the rapid growth of high-frequency trading.
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