August is usually the one time of year when City bankers can head off to the sun, put their feet up and pat themselves on the back as the Square Mile goes into effective hibernation.
This year, however, many are on edge as the spectre of a jobs cull looms large after the City suffered one of its quietest dealmaking periods in decades.
“I’m currently on holiday and spending half the time worrying about whether I’ll have a job to come back to,” says one investment banker at a mid-sized firm.
Last Monday, those concerns became a reality for dozens of employees at the London office of German lender Berenberg. One by one, bankers were called into meetings with management, told to pack up their belongings and leave.
It took bosses about four hours to sack 30 staff, which insiders said represented about one in 10 jobs in its investment banking arm. Berenberg has a total of 500 London-based employees.
One insider says: “A cull was so expected that no one was really that shocked. But the atmosphere for the last six months has been pretty bleak with constant speculation about cuts.”
Berenberg has not been the only City firm to trim its headcount. Broker Numis has also cut a handful of roles in London in recent weeks, according to industry sources.
And bosses elsewhere are walking a tightrope between attempting to reassure staff concerned about layoffs while also levelling with them that the outlook remains bleak.
In an internal memo, seen by The Telegraph, Rich Handler, the chief executive of investment bank Jefferies, told staff last month that “enormous wealth has been lost these past six months, everyone’s job is now much tougher, there is massive pain from major unsettled geopolitical tragedies”.
However, he added that this downturn is not one of those “systemically catastrophic or paralyzingly painful periods” experienced before, adding that the market feels “incredibly yucky”.
On the prospect of cuts, Handler said Jefferies’ strategy remains unchanged, but added: “People who underperform, are not fully committed, have lapses in judgment regarding ethics or who are not constantly reinventing themselves and growing, will always be at risk at Jefferies.”
He said: “What was clear to us is that people’s concerns are deep, emotional fatigue is real, and all of us are looking for comfort and confidence about the future.”
While the cuts have so far not been particularly deep, City observers believe they represent the beginning of a wave of job losses as banks look to reduce their cost base ahead of an impending recession.
A senior banker at another mid-sized company says chatter of potential cuts is rife in the Square Mile. “Yes, I think there will be more job losses to come, but I suspect it will be more hedge trimming than deep cuts,” he says.
The redundancies also highlight how rapidly the fortunes of investment banks have deteriorated after a highly lucrative post-pandemic boom last year triggered a hiring spree.
Fees have plummeted as stock market listings and equity raises have ground to a halt in the wake of Russia’s invasion of Ukraine, which spooked markets.
Between April and June, only 305 listings took place globally raising around $40bn (£32.7bn) in the process, according to the latest data from EY, a drop of 54pc and 65pc respectively on the same period last year.
London fared even worse. In the first six months of the year, only 13 initial public offerings got away, raising proceeds of just under $150m — mammoth declines of 71pc and 99pc.
In an email to staff on Monday, David Mortlock, Berenberg’s managing partner, spelled out just how quiet things had gotten for the company’s dealmakers in recent months.
“Clearly 2022 is a much more challenging environment. In terms of equity issuance, it’s the quietest year since 2003 and one of the biggest [year-on-year] declines ever,” he wrote.
“In response, we have taken steps to ensure the cost base of our investment bank is appropriate. We materially slowed hiring at the beginning of the year, reset our US business in June and have now adjusted our European platform. We have also taken action to reduce central costs across the bank.
“Although many of these decisions are difficult, acting early and decisively means we can be confident in the sustainability and gearing of our business heading into 2023 and beyond.”
While cuts in the City have only so far been announced at smaller, boutique investment banks — which are at greater risk of rapid downturns in activity than bigger rivals — bosses at larger European and Wall Street giants have also indicated that more pain is to come.
After all, the banking industry has historically not been shy, or apologetic, about wielding the axe at the earliest sign of a downturn.
Last month, Goldman Sachs warned that it could axe underperforming employees as it vowed to slow hiring, despite its traders helping it to alleviate some of the pain of the dealmaking slump by successfully profiting from the wild gyrations in stock markets.
One insider at a Wall Street bank says that dealmakers working in capital markets and corporate broking teams will be the most worried as the outlook continues to deteriorate, while traders are likely safe for now as they continue to generate significant revenue.
David Solomon, Goldman’s chief executive, last month painted a gloomy picture for the global economy, warning of the risks posed by higher inflation, the war in Ukraine and tightening monetary policy.
“In my dialogue with CEOs operating big global businesses, they tell me that they continue to see persistent inflation in their supply chain,” he told analysts.
Denis Coleman, the bank’s finance chief, also said that Goldman was “closely re-examining” all its “forward spending and investment plans”, adding that this included slowing hiring and looking at reintroducing the year-end performance review for all of its employees, which had been scrapped since the pandemic.
Credit Suisse is also said to be weighing up plans to reduce thousands of roles globally as it seeks to slash $1bn off its cost base.
Banking is not the only industry in the City likely to swing the axe. Douglas Flint, chairman of FTSE 100 asset manager Abrdn, says he also expects the investment management industry to face some cuts in the next six to 12 months.
“I'm sure that’s the case,” he says. “When activity falls you need fewer heads. I think efficiencies will come in mid-level and back office jobs with the increased automation of processes. There’s been a healthy turnover [of staff] in the industry anyway.”
In the wake of the 2008 financial crisis, the number of people working in the Square Mile plummeted by 20,000 as London’s financial services industry was plunged into chaos.
Given the industry played a central role in fomenting that particular crisis, the imminent recession is not expected to cause cuts anywhere near as deep. Industry sources estimate the damage to be in the hundreds or low thousands.
The senior City banker says: “There will be more to come, but I think we can expect them to be relatively thin as the recession should be a relatively short-lived affair. While the IPO market has been weak these things can reverse quite quickly.”
He adds that while he understands why some people are concerned about job security, he hopes most can switch off after a difficult period.
“It’s been a brutal couple of years, especially during the pandemic. I just want my team to go off and relax,” he says.