The narrative for Wall Street bank performance is pretty well established at this point.
January and February were awful. March was a bit better, but first quarter results were still lousy.
April seems to have been more like March than February, with an improvement in trading conditions, a reopening of the capital markets, and a resurgence in mergers and acquisitions activity.
That now has Wall Street on a knife edge. We’re four months in to the year: Two months have been terrible, and two months have been OK-ish.
Wall Street banks have already cut a ton of staff in the past six months, and bosses are now trying to figure out whether they should plan for more of the January/February type volatility, and initiate more job cuts, or hold off in the hope that the more constructive March/April conditions continue.
Here is Marcus Schenck, CFO at Deutsche Bank, speaking Thursday (emphasis ours):
We are of course … looking into potentially accelerating some of the cost measures that we have planned until the year 2018 as a reaction to what we are now seeing in the market. Clearly, if volumes — if market activity stay at a low level, then we will react to that. We have seen March and also April to clearly improve over the performance in January and February on the revenue side. So, in that sense, I would say it in a way too early in the year. But we are looking at ways to potentially improve the cost position by accelerating some of the measures.
Now, banks always say this. They always say they are focusing on what they can control, like expenses, and trying to be as efficient as possible. But this time it seems especially noteworthy, not least because a lot of these banks have already initiated sweeping job cuts.
Morgan Stanley, for example, slashed 25% of its fixed income business late last year, and yet is willing to launch another round of job cuts.
Here is James Gorman, CEO at Morgan Stanley, from the bank’s earnings call earlier this month (emphasis ours):
It must be said that if these markets were to continue as is, our goals will be extremely difficult to achieve, and we would therefore take additional appropriate actions. We obviously accept a degree of volatility in the revenue environment that has led to lower revenue pools. Although we do not expect this as a permanent state. We also recognise that we cannot control the environment in which we operate. We are focused on what we can control, such as expenses.
Goldman Sachs said something similar during its earnings call. Here is Harvey Schwartz, CFO at Goldman Sachs (emphasis ours):
In terms of other cost initiatives, I know there’s been a lot of stuff in the press. I guess I would really summarize it as follows. I would just say we’re shareholders and we’re doing things that you would expect shareholders to do.
The “other cost initiatives” he is referring to are job cuts. Goldman has been cutting staff too, though those cuts have been less public than the changes at Morgan Stanley and elsewhere. Schwartz has said in the past that Goldman Sachs has fired staff in trading, but that it tends to keep those cuts quiet.
To summarize, Wall Street banks are having a tough time of it, and it is clear that the next few months could determine whether there is another round of cuts, or a stay of execution.
Watch this space.