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Headcounts: A Key Focus in Banks’ Q3 Earnings Calls

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The Q3 earnings calls of major banks shed light on their efforts to streamline operations and enhance efficiency by reducing headcounts. As capital markets activity remains subdued following the initial post-pandemic boom, banks are looking to cut costs and optimize their workforce. With New York City finance jobs at a two-decade high and investment bank activity in a slump, it comes as no surprise that banks are prioritizing cost reduction. Notably, compensation constitutes the largest proportion of a bank’s expenses, as shown in the chart below (source: Company filings).

(millions of $s) Compensation Total operating expenses Compensation as % of noninterest expense Revenue % of Revenue
Goldman Sachs 4,188 9,054 46% 11,817 35%
JPMorgan Chase 11,726 21,757 54% 39,874 29%
Wells Fargo 8,627 13,113 66% 20,857 41%
Bank of America 28,870 48,114 60% 76,622 38%
Citigroup 6,745 12,749 53% 18,508 36%
Morgan Stanley 5,935 9,994 59% 13,273 45%

Citigroup (NYSE:C) has been restructuring its operations since the appointment of CEO Jane Fraser in 2021. The bank recently announced another round of reducing management layers, aiming to enhance efficiency. However, it has not provided an estimate of the number of jobs to be cut. On the other hand, Chief Financial Officer Mark Mason hinted at further reductions during the earnings call. Year-to-date, Citigroup has incurred approximately $600 million in repositioning charges, resulting in a reduction of around 7,000 headcounts. Mason confirmed that more charges related to organizational simplification will be taken in the coming quarters, aligning with the bank’s automation and efficiency efforts to streamline the workforce.

Bank of America (NYSE:BAC) has also been reducing its headcount, with a decline of 7,000 positions since its peak in January. The bank accomplished this while simultaneously hiring 2,500 college graduates in the fall. As a result, Bank of America’s expenses have decreased from $16.2 billion in Q1 to $16 billion in Q2 to $15.8 billion in Q3, without resorting to special charges or significant layoffs. The bank’s headcount stood at 212,752 at the end of Q3, down 2,794 from the previous quarter. By aiming to further reduce expenses to $15.6 billion, Bank of America is solidifying its position for the upcoming year, as highlighted by CFO Alastair Borthwick during the earnings call.

Goldman Sachs (NYSE:GS), after retrenching from its consumer finance division and right-sizing to align with the current capital markets environment, implemented significant job cuts earlier this year. CFO Denis Coleman confirmed that the firm does not expect further severance costs going forward since it has already achieved its goal of right-sizing the company. Goldman Sachs incurred $275 million in severance costs year-to-date, with $260 million recorded before Q3. The bank increased its headcount by 3% quarter-on-quarter in Q3 to reach 45,900, but it is down 7% year-on-year.

Wells Fargo (NYSE:WFC) has been consistently reducing its headcount since Q3 2020. In Q2, the bank trimmed its workforce by 3% and by 5% compared to the previous year. Despite these ongoing reductions, Senior Vice President and CFO Michael Santomassimo expressed belief in additional opportunities for headcount reduction, as attrition remains low. Consequently, additional severance expenses are expected in 2024. As of September 30, Wells Fargo’s headcount stood at 227,363, down 6,471 from the end of June.

While most banks are actively cutting costs through headcount reductions, JPMorgan Chase (NYSE:JPM) is taking a different approach. The bank experienced a rise in expenses during Q3, largely due to an increase in headcount, especially in front-office and technology roles. JPMorgan’s headcount grew by 8,603 in Q3, bringing the total to 308,669.

Morgan Stanley (NYSE:MS) did not discuss headcount, staffing levels, personnel, or severance during its Q3 earnings call. The focus of the call was primarily on the completion of integrating the E*Trade acquisition.

As the banking industry continues to adapt to changing market conditions, managing headcounts is indispensable to improving efficiency and maintaining cost competitiveness. While some banks have been successful in reducing headcounts and implementing strategies to enhance performance, others are taking a different approach, prioritizing investments in their workforce. The dynamics of each bank’s strategy will undoubtedly shape their performance going forward.

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