JPMorgan, Goldman Sachs, Morgan Stanley: 2022’s recruits flop
2022’s new bankers were not as worthwhile as recruits in previous years.
As banks stifle hiring, it's worth revisiting the reason why banks are less inclined to hire people this year. Bank failures and low and stagnant revenues aside, last year's hires didn't bring much to the table. 2022 hiring was a bit of a flop.
An analysis of marginal revenues per head at Morgan Stanley, Goldman Sachs, and JPMorgan’s Corporate and Investment Bank (CIB) shows why this year's hiring pull-back was pretty much inevitable.
Marginal revenues per head are calculated by dividing the change in a company’s revenue by the change in headcount. So, a million more dollars in revenue and ten new employees in 2022 would mean the company had a marginal revenue per employee of $100k.
How did the big banks do?
In a nutshell, badly. The big US banks dramatically increased headcount over the course of 2022, but had nothing to show for it. Goldman Sachs’ 4,600 headcount increase over the course of last year was its largest in ten years. Morgan Stanley and JPMorgan’s 7,613 and 5,906 were the second-largest increases over the same time period.
And yet, revenues at all three fell. When we analysed banking revenues for 2022, last year was the largest drop in the last ten years.
Analysing headcount is tricky, though. Goldman Sachs made five acquisitions between 2020 and the end of 2022. Its purchases of NN Investment Partners (a Netherlands investment manager) and GreenSky (a provider of home improvements loans) both closed last year, adding over 2,000 employees. Neither company's employees are as productive as Goldman's top traders.
Morgan Stanley’s acquisitions of E*TRADE and Solium Capital in 2019 are similar. E*TRADE (which was absorbed in 2020) had over 4000 employees; Solium, which was acquired in 2019, had 781. Solium's 781 people produced $108m in revenue in 2018, or $138k per head, well below Morgan Stanley’s $664k for the same time period.
Nonetheless, banks do not make acquisitions to make themselves less productive. Goldman said its acquisition of NN, for instance, was “highly complementary” to its existing footprint and ambitions.
The only company that has done well from headcount additions in the past year is Deutsche Bank, where marginal revenues per head were - surprise, surprise - positive in 2022.
A lot of that is down to the bank’s strong performance in fixed income currencies and commodities (FICC) trading, but also down to a multi-year fat trimming (job cutting) project that has paid dividends and leaves DB best placed to hire in 2023.
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