Banks are gearing up for the biggest round of job cuts since the global financial crisis, as executives come under pressure to slash costs following a collapse in investment banking revenues.

The lay-offs — which are expected to be in the tens of thousands across the sector — reverse the mass hirings banks made over the past few years and the reluctance to fire staff during the Covid-19 pandemic.

“The job cuts that are coming are going to be super brutal,” said Lee Thacker, owner of financial services headhunting firm Silvermine Partners. “It’s a reset because they over-hired over the past two to three years.”

Banks including Credit Suisse, Goldman Sachs, Morgan Stanley and Bank of New York Mellon have begun to cut more than 15,000 jobs in recent months, and industry watchers expect others to follow suit, emboldened by the headline-grabbing plans already announced.

“We’ve seen some warning shots from the US,” said Thomas Hallett, an analyst at Keefe, Bruyette & Woods.

“Investors need to see management acting on cost and trying to maintain a reasonable return profile. The Europeans will tend to follow the US banks.”

Ana Arsov, co-head of global banking at Moody’s, said she expected the job cuts to be less severe than during the financial crisis, but heavier than the collapse in the markets after the dotcom crash in 2000.

“What we are seeing is a catch-up of normal bank lay-offs that were put on pause over the past few years,” she said. “We will see trimming in European franchises, but not as big as at US banks.” 

Bank executives said Goldman’s eye-catching lay-offs — part of its biggest cost-cutting drive since the financial crisis that includes everything from corporate jets to bonuses — had set a precedent that other banks would look to follow.

“The Goldman headlines are accelerating decision making,” said an industry executive with knowledge of several banks’ plans. “It’s a good time to announce painful cuts if you just follow Goldman.”

The Wall Street bank began a process of firing up to 3,200 staff last week, equating to 6.5 per cent of the workforce, as pressure mounts on chief executive David Solomon to improve the bank’s return on tangible equity.

Goldman is cutting a similar number of staff as it did in 2008 during the depths of the global financial crisis, but its workforce then was two-thirds of its current size.

Morgan Stanley laid off 1,800 staff in December, just over 2 per cent of its workforce. Despite having a strong wealth management business, the lender’s investment bank suffered along with its fierce rival Goldman Sachs from a near halving of M&A revenues last year.

Morgan Stanley said no further staff cuts were imminent.

“We were frankly a little overdue,” chief executive James Gorman told analysts. “We hadn’t done anything for a couple of years. We’ve had a lot of growth, and we’ll continue monitoring that.”

Bank of New York Mellon, the world’s biggest custody bank, plans to cut just under 3 per cent of its workforce — around 1,500 staff — in the first half of the year.

Chief executive Robin Vince told the Financial Times that the bank had been “very careful to recognise” that letting people go during the Covid pandemic would have “broken the social contract” with employees.

But he added that “in the ordinary course of business we review staffing levels. As a well-run business we have to be good stewards of our expense base.”

By far the biggest cuts announced so far are by Credit Suisse, which is in the middle of a radical strategic revamp aimed at solidifying the scandal-plagued Swiss bank. Last October, the bank said it would be cleaving 9,000 roles from its 52,000 workforce over the next three weeks.

While 2,700 of the cuts were planned last year, the bank has already begun redundancy consultations over 10 per cent of investment banking roles in Europe, the Financial Times reported last week.

The size of the restructuring at Credit Suisse is greater than the bank went through during the financial crisis, when it was forced to lay off more than 7,000 staff in 2008 but avoided a state bailout.

Not all banks expect to make large reductions to headcount, though they are taking other measures to keep costs down.

Bank of America, which employs 216,000 globally, said it did not “have any plans for mass lay-offs”, though it was taking a disciplined approach to costs and would only hire for the most crucial roles.

Chief executive Brian Moynihan told Bloomberg in Davos that fewer people had left the bank than it expected last year, which was affecting its recruitment policy.

“We overachieved on the hiring side and we went past our target headcount,” he said. “And now we can do a slowdown in hiring.” 

Citigroup has so far given few details about how many of its 240,000 global workforce will be affected by lay-offs, but chief financial officer Mark Mason told journalists that there was pressure to cut costs within its investment bank, following the division’s 22 per cent fall in profits.

“As part of [business as usual], we’re constantly combing talent to make sure we have the right people in the right roles and where necessary to restructure, we do that as well,” he said.

Yet at least one global bank is looking to beef up its ranks, albeit in a targeted way. UBS chief executive Ralph Hamers said at Davos that the Swiss lender was “bucking the trend” when it came to recruitment.

Unlike its rivals, UBS has not hired aggressively in recent years and so is not under the same pressures to cut roles.

It has also dedicated more resources to wealth management over the past decade and senior executives at the bank feel now is a good time to invest more in the investment bank — along with hires in wealth and asset management — as competitors pull back.

These efforts include picking off disgruntled dealmakers from boutique advisory firms, senior figures at UBS told the FT.

By comparison, UBS was forced to cut 10 per cent of its workforce in 2008 — with most roles coming from its investment bank — as the lender was bailed out by the Swiss government after suffering heavy losses on subprime mortgages.

Several of the biggest job cuts in 2008 came from banks that had rescued rivals brought to their knees by the financial crisis. When Bank of America took over Merrill Lynch, for example, it fired 10,000 staff, while also making 7,500 workers redundant at mortgage lender Countrywide Financial.

JPMorgan let 9,200 Washington Mutual staff go when it took on the US’s largest savings and loan association, in addition to cutting a 10th of its own workforce.

Meanwhile, the collapse of Lehman Brothers and Bear Stearns led to tens of thousands of bankers out of work. In total, more than 150,000 bankers lost their jobs during the financial crisis.

And just like 15 years ago, the prospect of quickly finding re-employment for those now out of work is bleak, according to recruiters.

“You have this horrible flood of quality coming on to the market, but who picks them up?” said Thacker. “The buyside isn’t there to hire these people this time. They just don’t have the capacity.”