Deutsche’s Advice To Investment Banks: Cut More Staff

Deutsche’s Advice To Investment Banks: Cut More Staff
News from Wall Street & Technology:

LONDON, Aug 31 Investment banks, set to book $ 240 billion revenue this year, still need to cut jobs and costs to make the industry profitable, Deutsche Bank said.

Few will deliver returns above their cost of equity, which averages about 12 percent, with back-office functions and equities and advisory units most ripe for the knife, analysts at one of the world’s biggest investment banks said.

“To the extent that investment banks are not delivering the profits they should, this is down to industry fragmentation and the related issue of costs being too high,” Matt Spick said in the note published on Friday.

The cost problem was due to overstaffing, rather than excessive pay levels, he said. The industry was inefficient, with too large a back office, and banks provided too much advice when most clients wanted “fast execution at the best prices”.

Investment bank revenue and profitability have been hit hard by weak economies and tougher regulation, and many in the industry say this marks a structural shift that banks have been slow to adjust to.

Tumbling revenue from stock trading and a big fall in dealmaking in the first six months of this year dragged industry earnings down, intensifying pressure on banks to cut costs, notably through job cuts.

Deutsche Bank’s report said only a small handful of investment banks, led by U.S. grou…………… continues on Wall Street & Technology

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