It was just a few months ago that employment on Wall Street hit a post-crisis high. As 2015 rolled to a close, more than 172,000 people called the Street their home away from home, according to a report from the New York State Department of Labor published in early March. That’s the largest workforce the financial sector has employed since 2008, but that may be changing now.
Wall Street is now feeling the pressure of a weak stock market. Lower share prices and cloudier financial forecasts have big banks laying people off and considering letting more people go. In a CNBC report on the bulk of the layoffs, Barclays CEO Jes Staley remarked that he’s already eliminated 6000 jobs since taking over the helm at the bank at the end of 2015, which is double the total number of cuts in the 3 years preceding him. RBS said in 2015 it would reduce its investment banking staff by 14,000 by 2019. Morgan Stanley reported late in 2015 that it had reserved $150m for layoff-associated costs, cutting 1200 positions. Bank of America recently set aside similar sums for severance expenses, the company’s CEO said on the bank’s most recent earnings call.
“[W]e did reduce head count in the business, the markets businesses and the related capital markets business,” BofA CEO Brian Moynihan noted. “We didn’t make big announcements, but that led to the $130 million in severance in the fourth-quarter numbers.”
Wall Street has always been subject to bipolar swings, staffing up during strong economies and paring down when times get leaner. But something is different this time and you can see it when you look at how much money the Street is investing in technology. Employment may be shrinking at Wall Street firms but technology spending is enjoying its own bull market. Last June, SourceMedia conducted an online survey of 50 of the top banking CIOs and found that about 50% of them expect to increase their technology spending. About a third of the participating CIOs forecast budget increases of 20% or more.
When you look at what banks are spending their IT budgets on, one of the most popular areas of investment is cybersecurity. Most senior Wall Street technology leaders polled are increasing their budgets for security technology by at least 10%. While lawyers and compliance teams are going to be receiving larger kitties this year, banks are focused on building out their online banking, data analytics, and payments capabilities.
Technology spending is pretty much increasing across the board, from branch technology to upgrading the lowly desktop on trading desks. But money is also flowing to areas that were previously the domain of Wall Street’s brightest and most talented. Hundreds of financial analysts are being replaced with software. Big chunks of the number crunching tasks that analysts spend hours toiling away on every day are being automated. Sensitivity analysis, like what happens to Stock X when Economic Event Y occurs, is being increasingly handled by computers now. Firms are shedding the jobs that produce this type of cornerstone analysis as part of their equity research product.
The New York Times recently profiled the automation of the Wall Street workforce in the New York Times Magazine. In The Robots are Coming for Wall Street, the newspaper profiled the growing automated financial workforce. There’s an evolution going on here and it began years ago with lower-paid clerks, “many of whom became unnecessary when stock tickers and trading tickets went electronic”. Next up is where we find ourselves today: software capable of analyzing large sets of data more quickly and reliably than human analysts ever could. The next ‘‘tranche,’’ according to the article, could see client-facing responsibilities relegated to the machines.
‘‘I’m assuming that the majority of those people over a five-to-10-year horizon are not going to be replaced by other people,’’ said Daniel Nadler, founder of Kensho, a technology provider that’s developing automated financial analysis. ‘‘In 10 years Goldman Sachs will be significantly smaller by head count than it is today.’’