2023 has been a torturous year for the global banking industry. The global banking sector has seen significant layoffs due to reduced trading and IPO activity, coupled with several banking crises. According to statistics, the global banking industry will lay off more than 60,000 employees in 2023, one of the worst layoffs since the financial crisis, and it has also changed the situation of banks hiring heavily since the pandemic. At the end of the year, the central banks of advanced economies, represented by the Federal Reserve, have gradually slowed down the pace of interest rate hikes and entered the end of the current interest rate hike cycle
The strongest wave of layoffs.
According to the Financial Times, among the world's top banks, at least 61,905 people will be laid off in 2023. This time, about half of the layoffs came from Bank of America, which responded to the challenges posed by the Federal Reserve's rapid rate hikes.
Under the combined influence of factors such as the Federal Reserve's continuous interest rate hikes and poor bank risk management, Silicon Valley Bank announced its collapse in March this year, and the US banking crisis continued to spread, even to Europe for a time. As a result, global bankers have been implicated: the merger of Credit Suisse and UBS alone has resulted in at least 1 layoff in the combined entity30,000 people, and further significant layoffs are expected in the coming year.
Among the many banks that laid off employees, UBS had the largest number of layoffs, at 130,000 people, mainly due to its acquisition of bankrupt Credit Suisse, UBS is expected to lay off more employees in 2024. The second-largest number of layoffs was made by Wells Fargo, which laid off 120,000 people, and it has already been indicated that further layoffs are possible.
Citibank, which has maintained a steady headcount since last year, is also adjusting its strategy. Its chief financial officer, Mark Mason, previously said that the bank has confirmed that it will lay off 7,000 employees and will pay up to $600 million in restructuring costs. Citi executives also revealed that CEO Jane Fraser has plans to reform the company's structure and ** overseas retail business, which will further reduce headcount in the coming quarters.
Other large Wall Street banks, including Citi, Morgan Stanley, Bank of America, Goldman Sachs and JPMorgan Chase, cut about 30,000 jobs in total. In terms of the proportion of layoffs, Metro Bank in the United Kingdom has the largest layoffs, and has announced plans to cut 20% of its workforce. By contrast, most multinational banks have laid off less than 5% of their workforce.
Lee Thacker, an analyst at financial services executive search firm Silvermine Partners, said there was a lack of stability and growth in the banking sector, and further layoffs were expected to be a general trend.
Transmission of banking crises.
Looking back on 2023, the bankruptcy of Silicon Valley Bank has become a landmark event in the global banking industry. In March, Silicon Valley Bank, the 16th largest bank in the United States, first experienced its stock price in just 48 hours**, and soon declared bankruptcy and was taken into receivership. As a result, the U.S. financial market has been violent, and many financial institutions and companies have fallen into chaos. The market was worried about whether Silicon Valley Bank would become the second Lehman Brothers, which would further trigger systemic financial risks in the United States and even impact the global financial system.
Yang Haiping, a researcher at the Institute of Finance and Economics, told Beijing Business Daily that the collapse of Silicon Valley Bank is directly related to the Fed's aggressive interest rate hikes. Silicon Valley Bank's balance sheet is branded as a science and technology innovation finance. When monetary policy is loose, it is relatively easy for tech startups to raise funds and deposit large amounts of money in Silicon Valley Bank. Silicon Valley Bank has a significant allocation to held-to-maturity fixed income assets.
Yang Haiping further analyzed, but with the development of the Federal Reserve's aggressive interest rate hikes, science and technology companies have insufficient financing and have begun to withdraw a large amount of cash from Silicon Valley Bank, which is the reason for the formation of the liquidity gap. In order to fill the liquidity gap, Silicon Valley Bank had to ** its asset portfolio, and since interest rates were already high at this time, the assets ** formed a large loss. Since then, Silicon Valley Bank has launched a refinancing program to the market. Concerns about its illiquidity intensified, leading to more deposit withdrawals and shorting, and the liquidity crisis erupted.
After Silicon Valley Bank, First Republic Bank, Signature Bank, etc. collapsed one after another, and a series of bank failures shook the banking industry in the United States and even the world. On the other side of the Atlantic, Credit Suisse in Europe is also caught in the whirlpool of its own existing risks and volatile macro market conditions, and will be acquired by UBS.
A series of events has forced officials to step up with new legislation to protect customer deposits and stabilize the financial system. Chen Jia, an independent international strategy researcher, mentioned that this puts forward higher requirements for the operation of banks, such as a significant increase in the threshold for capital verification. The Federal Reserve, the Federal Deposit Insurance Corporation (FDIC) and other financial property flow regulators have issued a package of reforms that would increase the amount of capital that banks with assets worth more than $100 billion must hold by about 16%.
Among them, JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs, Morgan Stanley and other eight largest banks in the United States are facing an increase of about 19% in capital requirements. Other assets in the range of $100 billion to $250 billion in bank capital increased by about 5 percent.
Potential Risks. After the crisis fermented, the pressure on the performance of global banks increased sharply. Chen Jia mentioned that the spread of the liquidity crisis has also caused a serious loss of deposits in the banking industry, which has also had a significant impact on bank operations. In July, seasonally adjusted data released by the Federal Reserve showed that commercial bank deposits plummeted by $78.7 billion.
In August, Moody's, one of the three major international rating agencies, issued a report downgrading the credit ratings of 10 small and medium-sized banks in the United States, placing six large American banks on the downgrade watch list, and another 11 banks with negative rating outlooks. In addition, Moody's downgraded the outlook ratings of 11 large U.S. banks, including Capital One Bank, Citizens Financial Group Inc., and 53 Bank, to negative.
Chen Jia said that the current global ** and financial system is still based on the US dollar, the Fed's continuous interest rate hikes not only affect the US economic operation itself, but also have varying degrees of impact on the world's major economies, the Fed's interest rate hike means that US loans are reduced, borrowing costs are rising, and other assets are declining, and the US financial environment is tightening, which can quickly spread to other economies.
However, raising interest rates is not without its benefits. Chen Jia pointed out that high interest rates have led to an increase in the level of interest margins in the banking industry, and the net interest income of large banks in Europe and the United States has increased significantly.
As for the outlook for next year, Moody's said in the report that many U.S. banks showed increasing pressure on their earnings in the second quarter. Widening commercial real estate exposure has become a key risk for the banking sector, mainly due to high interest rates due to continued interest rate hikes, lower office demand due to remote work, and tighter credit facilities for commercial real estate projects. Moody's believes that the US will fall into a mild recession in early 2024, at which point risks may increase further, financial asset quality will deteriorate, and the risks to commercial real estate portfolios of some banks in particular will rise.
Beijing Business Daily reporter Fang Binnan Zhao Tianshu.