Job cuts may be spreading from the tech and crypto sectors to Wall Street. The New York Post reported that bankers, brokers and traders may need to start worrying about upcoming layoffs.
The confluence of the Federal Reserve Bank raising interest rates, runaway inflation at over 9.1% and general uncertainty over macro and geopolitical events may cause a slowdown in initial public offerings (IPOs) and other deal-making activities. According to the Post, “Layoffs will ravage the industry’s workforce by at least 10%—and that the bloodbath could be in full swing by year’s end.”
‘Limping’ Into The Summer
CNBC reported that the securities industry is “limping into the traditionally slower summer months,” as the stock market is in bear market territory, and IPOs have plummeted by more than 90% compared to last year at this time. There hasn’t been the same steady flow of mergers, acquisitions, SPACs and other deal-making that were in full force up until fairly recently.
The fate of bankers may follow the same trajectory as investment banks’ revenue, not unlike stock market charts that reflect a revision back to 2020 to 2021 levels. As hiring rapidly grew out of pent-up demand, banks may recognize that they have too many people for too few investment activities.
Fintech And Cryptos Downsized Workers
Fintechs laid off over 4,000 employees in the first half of 2022, according to an analysis made by TechCrunch of data from Layoff.fyi, a site aggregating companies that are downsizing and the people impacted. These numbers don’t include cryptocurrency platforms. Recently, Gemini and Coinbase let go of staff and enacted hiring freezes. An uncomfortable number of crypto exchanges, a digital asset-based hedge fund and other related entities either filed for bankruptcy protection or are in serious trouble.
What Led To The Need To Downsize Wall Streeters
During the pandemic, there was a dramatic uptick in day-trading activities. In an everything-goes-up environment, supported by cheap, low-interest borrowing rates, commission-free trading and unbridled euphoria, people stuck at home traded stocks and cryptocurrencies with reckless abandon. The market brutally sold off, which may result in the loss of an entire generation of investors who lost all of their gains from the last two years. They may distrust the system and choose not to return.
Tech employees were shocked when they received their pink slips. For the young cohorts, working at large marquee tech firms and startups allowed them a plush life. They were paid exceedingly well and received stock and options in their total compensation package that could make them rich.
The bubble burst when the Fed and the United States government stopped quantitative easing, injecting trillions into the economy and sending stimulus checks to families. These measures kept people and businesses afloat, but also sowed the seeds for the rapid increase in inflation. As interest rates rise, venture capitalists, startups and companies can’t obtain artificially low cheap capital. The rug has been pulled out from under the sector, and tens of thousands of people were downsized.
This experience may eerily mirror what also happened in the financial industry. Wall Street boomed during the pandemic and after the economy reopened. Now, it is experiencing a slowdown. The hot real estate market has cooled off, as prospective buyers saw significantly higher mortgage and interest payments and opted out of home-buying contention. Wells Fargo and JPMorgan have both laid off staff in their mortgage units, as high-interest rates made purchasing a home more expensive and out of reach for many Americans.
There’s Hope On The Horizon
Similar to the pampering of tech personnel, Wall Street coddled its young junior bankers with more money, Peloton Bikes, tech gadgets, bonuses and other incentives.
There may be a ray of hope. There is an adage on Wall Street related to investing: “Sell in May and go away.” Summertime for Wall Street is historically slower than the rest of the year. Top executives depart Manhattan to decompress in the Hamptons. Leadership at the big banks may wait to see how things play out and reserve making cuts until September. This buys time to call Fed Reserve chair Jerome Powell’s bluff.
Powell and treasury secretary Janet Yellen poorly miscalculated the economy, stating that inflation was only “transitory.” Unfortunately, the Fed woke up too late. Rampant inflation was unleashed and has wreaked havoc.
Powell’s jawboning over continually ratcheting up interest rates may be rhetoric designed to warn Wall Street and other businesses to take action. If the economy and job market cool down, which is the goal of the Fed to beat back inflation, the interest rate increases may be lower than expected. This would greatly relieve Wall Street, the tech sector, and other businesses and investors. Moreover, it may stabilize the economy and plant seeds for future growth. In the meantime, hold onto your job and make yourself indispensable.