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EDITIONS
Tuesday, 12 November, 2002, 16:45 GMT
Jobs axe descends on the City
View of the City of London

German financial giant Commerzbank's decision this week to jettison one third of its investment banking staff will have sent a chill wind through the City of London, Europe's leading financial centre.


(Banks') revenues have fallen roughly to 1996 levels, and they are basically re-designing their headcount around those numbers.

Rupert Channing, Heidrick & Struggles
The Commerzbank jobs cull, which is sure to affect dozens of the bank's UK-based employees, has underlined the severity of the downturn gripping London's financial district.

A steady flow of lay-offs has taken its toll on the Square Mile's workforce since the economic downturn began to choke off the lucrative investment banking work that keeps the City ticking over.

And there is little doubt that the pace of job losses is picking up.

Closed doors

Last month alone, banking giants CSFB, Goldman Sachs, JP Morgan and Lehman Brothers are thought to have made over 1,000 staff redundant between them.

Since sacked City workers do not as a rule sign on at the dole office, and since big name financial institutions prefer to do their dirty work discreetly, it is difficult to say precisely how many bankers have lost their jobs since the downturn began.

But the Centre for Economics and Business Research, a London-based think tank, predicts that by the end 2003, the City workforce will have fallen by 30,000 from its peak two years ago, to a total about 300,000 people.


For every 10 City jobs, there are a further seven dependent jobs spread throughout the rest of the economy

Richard Greenwood, CEBR

The CEBR's latest forecast has been revised upwards from an initial estimate of 21,000 job losses issued back in June.

Others put the total even higher.

Financial sector recruitment group Heidrick & Struggles reckons that 35,000 City jobs have been lost in the last 18 months alone, with staff advising on mergers and acquisitions hit particularly hard.

Knock-on effects

And it would be a mistake to dismiss the City's jobs misery as a little local difficulty affecting only pinstriped fat cats.

Newly redundant bankers do not elicit the same level of sympathy as sacked manufacturing workers.

But their hefty spending power while employed mean that large-scale City job losses can spell trouble for the wider economy.

"We estimate that for every 10 City jobs, there are a further seven dependent jobs spread throughout the rest of the economy, " CEBR analyst Richard Greenwood told BBC News Online.

City office block
Many City office blocks are emptying out

Already, banking lay-offs are being blamed for weaker prices at the top end of London's property market, and sluggish sales of luxury goods.

The current downturn has not yet equalled in severity the savage bout of retrenchment that took place in the early 1990s, when about 45,000 City jobs were lost over three years.

But analysts say a number of factors are conspiring to aggravate the latest round of blood-letting.

Caught out

Firstly, the abruptness of the downturn took the banking sector by surprise.

Many banks, worried that they might have to go on an expensive re-hiring spree in the event of an equally sudden upturn, initially refrained from letting staff go.

"Firms were reluctant to overfire," Rupert Channing, head of European financial recruitment at Heidrick & Struggles told BBC News Online.

"But they are now catching up.

"Their revenues have fallen roughly to 1996 levels, and they are basically redesigning their headcount around those numbers."

Secondly, the downturn followed a period of intensive banking sector recruitment, much of it based on the assumption that the equities bull market of the late 1990s would continue indefinitely.

This left many banks seriously overstaffed when business volumes began to dry up.

Finally, a round of banking mergers and acquisitions has led to the disappearance of many of the sector's big names over the last few years, greatly reducing sacked City workers' chances of being re-absorbed.

Future hopes

The good news is that the City's long-term prospects still look bright.

The CEBR reckons that the City's workforce will expand to 350,000 people by 2010, fuelled by a fresh flow of big corporate deals once the economy gets back on track.

"Long term, financial services is definitely a growth industry," said Mr Greenwood.

Analysts also point out that since the recent round of banking lay-offs has fallen particularly hard on junior and middle-ranking staff, the sector will sooner or later be forced to start recruiting again just to stand still.

But the bad news is that with economic growth remaining sluggish on both sides of the Atlantic, and with the prospect of war in the Middle East weighing heavily on investor confidence, it is impossible to say when the upturn will begin.

"The turnaround is not going to be an event," said Mr Channing.

"Things will start to feel better in very small increments."

See also:

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