Investment banks are cutting jobs in equities faster than any other division as revenue recovers at a slower pace than the rest of their businesses and more trading is automated.
Employees on stocks desks fell by 8.5 percent globally in the first nine months of last year, according to a survey by Coalition Ltd., an industry analytics firm. That compares with a 6.6 percent drop in fixed-income workers and a 5.8 percent decrease for origination and advisory functions, the data show.
Banks fired workers in equities after declining trading volume reduced revenue at the same time that the growth of automated stock and options transactions squeezed margins. Trades that require human involvement cost 2.05 cents per share while those done by computer cost 1.08 cents, Tabb Group LLC said. Forty investment banks from Bank of America to Nomura Holdings announced more than 68,000 job cuts in 2012, according to data compiled by Bloomberg Industries.
"No matter what happens, the way that the business has been run will be permanently changed by this challenge," Mike Di Iorio, head of equities at Barclays Capital for Asia Pacific, said in Hong Kong recently.
Global banking and markets revenue grew 53 percent in the third quarter of 2012, the first increase in a year, according to data from nine banks compiled by Bloomberg. Equities sales and trading revenue rose 6.7 percent in the same period, the slowest rebound apart from advisory services.
Nomura announced in September that it is folding equities execution outside of Japan into Instinet Inc., the brokerage it acquired in 2006. The Tokyo company's action may result in 200 job losses, according to a person briefed on the plans.
Royal Bank of Scotland Group said in January it was exiting cash equities, the trading of common shares on public exchanges, and failed to find a buyer for its European unit. The lender sold units to Jefferies Group Inc. as well as ABN Amro Group and agreed in April to sell most of its Asia-Pacific unit to Malaysia's CIMB Group Holdings, which retained 331 out of about 600 RBS employees in the region.
UniCredit, Italy's largest bank, said in June it would scale back its central and eastern European equities business. Equity workers will be among 1,600 jobs Morgan Stanley plans to eliminate from its investment bank in coming weeks, a person with direct knowledge of the matter said last week.
The industry's consolidation goes beyond cash equities into derivatives, James Boyle, head of equities trading in Asia Pacific for Citigroup, said in Hong Kong last month.
"Before, options market-making, warrants, single-stock options and cash could all run as silos and get decent returns," he said. Now, "all the banks are looking at it from the efficiency side and how to best serve customers," he said. "Some banks will even have the same trader running several businesses."
In Asia outside of Japan, Barclays is combining traditional client-facing equity sales with program and electronic trading under the same managers, Di Iorio said. That change has already been made to units in the U.S. and Japan.
The nine largest global investment banks - Deutsche Bank, Barclays, JPMorgan Chase & Co., Bank of America, Citigroup, UBS, Credit Suisse Group, Goldman Sachs Group and Morgan Stanley - announced more than 30,000 job cuts in the first nine months of the year, according to data compiled by Bloomberg.
Deutsche Bank is also considering reducing bonuses for investment bankers by as much as 20 percent on average for 2012, according to four people briefed on the matter. The Frankfurt-based lender is attempting to boost profitability and tie pay more closely to company performance.
Small brokerages that make trades by phone or sell research also are finding it harder to earn commissions amid shrinking volume and increased automation.