There is an apocryphal anecdote about a chief executive of a European bank and a trip to the trading floor that pretty much sums up what has happened to Wall Street staffing since the financial crisis.
The story goes like this: The bank had just cut a bunch of traders, and the CEO happened to walk across the trading floor where many of those staff once worked. To his surprise, the floor still looked pretty full.
He turned to a colleague, and said something to the effect of: “Who are all these people? I thought we just fired a bunch of traders?”
His colleague responded by confirming that the bank had indeed just fired a bunch of traders. Their seats had been taken by compliance staff.
I have no idea if it is true, but it sums up one of the key issues banks have faced since the financial crisis: while front-office headcount and compensation have decreased, back-office staffing and costs have gone up.
I was reminded of the anecdote while reading through a JPMorgan note on the banking sector. The table below shows how investment bank compensation expenses fell 21% from 2009 to 2015, with this figure dropping 39% at Credit Suisse.
Non-compensation expenses (think bank infrastructure, IT, systems etc) have increased, however, by 7%. And headcount has only fallen 3%, despite huge cuts to the number of traders and bankers at the banks.
The JPMorgan analysts have a case study too, focusing on Deutsche Bank. The number of front-office staff there fell from 10,085 in 2011 to 7,895, according to the analysts, yet the total number of employees housed in corporate banking and securities remained stable.
The ratio of infrastructure staff to front office headcount jumped from 1.7 to 2.4 over the same period.
So maybe that anecdote isn’t so far-fetched.