Food for Thought on Wall Street

If you believe Wall Street's health is a barometer of the overall economy's, you'd best take a deep breath and read today's Financial News article on the plans investment banks have to cut jobs and make contingency plans for a possible market slowdown in the second half of 2007.

Most banks cut between 1% and 5% of their staff each year as part of performance reviews. In the past few years the cuts have been at the lower end of this range, as banks struggle to keep up with high volumes of business.

The head of one investment bank in London said: “We are applying greater economic discipline to our costs this year than for several years. We can only afford to pay our best staff competitively if we don’t waste money on those who do not deliver. For the past few years, the industry has been growing rapidly. While next year looks like it will remain strong for investment banking, there are concerns over the interest rate environment, trading profits and levels of leverage.”

One big US bank recently held an offsite meeting for its senior directors, where one of the sessions was called “Preparing for the Downturn”.

Earlier this year, the Securities Industry Association (now the Securities Industry and Financial Markets Association) estimated Wall Street's profits could drop 22 percent next year, and a number of investment banks have been tightening their belts lately through cost-containment programs or job reductions. All food for thought.

Banks get tough on performance [Financial News]